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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/25/20 Coca-Cola Consolidated, Inc. 10-K 12/29/19 162:32M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-K Annual Report HTML 2.86M
2: EX-4.1 Instrument Defining the Rights of Security Holders HTML 80K
3: EX-10.40 Material Contract HTML 322K
4: EX-10.41 Material Contract HTML 122K
5: EX-10.42 Material Contract HTML 163K
6: EX-21 Subsidiaries List HTML 60K
7: EX-23 Consent of Experts or Counsel HTML 45K
8: EX-31.1 Certification -- §302 - SOA'02 HTML 53K
9: EX-31.2 Certification -- §302 - SOA'02 HTML 53K
10: EX-32 Certification -- §906 - SOA'02 HTML 47K
130: R1 Document and Entity Information HTML 113K
76: R2 Consolidated Statements of Operations HTML 111K
20: R3 Consolidated Statements of Comprehensive Income HTML 89K
110: R4 Consolidated Balance Sheets HTML 187K
129: R5 Consolidated Balance Sheets (Parenthetical) HTML 73K
75: R6 Consolidated Statements of Cash Flows HTML 153K
19: R7 Consolidated Statements of Changes in HTML 73K
Stockholders' Equity
111: R8 Consolidated Statements of Changes in HTML 51K
Stockholders' Equity (Parenthetical)
128: R9 Description of Business and Summary of Significant HTML 112K
Accounting Policies
72: R10 Piedmont Coca-Cola Bottling Partnership HTML 55K
51: R11 Related Party Transactions HTML 193K
106: R12 Revenue Recognition HTML 116K
159: R13 Segments HTML 132K
71: R14 Net Income (Loss) Per Share HTML 326K
50: R15 Inventories HTML 65K
104: R16 Prepaid Expenses and Other Current Assets HTML 74K
158: R17 Property, Plant and Equipment, Net HTML 107K
69: R18 Leases HTML 251K
52: R19 Goodwill HTML 65K
113: R20 Distribution Agreements, Net HTML 86K
133: R21 Customer Lists and Other Identifiable Intangible HTML 63K
Assets, Net
74: R22 Other Accrued Liabilities HTML 88K
18: R23 Derivative Financial Instruments HTML 130K
112: R24 Fair Values of Financial Instruments HTML 286K
132: R25 Income Taxes HTML 353K
73: R26 Benefit Plans HTML 661K
17: R27 Other Liabilities HTML 71K
114: R28 Debt HTML 159K
131: R29 Commitments and Contingencies HTML 77K
160: R30 Risks and Uncertainties HTML 105K
108: R31 Capital Transactions HTML 83K
48: R32 Accumulated Other Comprehensive Income (Loss) HTML 494K
67: R33 Supplemental Disclosures of Cash Flow Information HTML 164K
161: R34 Quarterly Financial Data (Unaudited) HTML 259K
109: R35 Valuation and Qualifying Accounts and Reserves HTML 106K
49: R36 Description of Business and Summary of Significant HTML 468K
Accounting Policies (Policies)
68: R37 Related Party Transactions (Tables) HTML 170K
162: R38 Revenue Recognition (Tables) HTML 103K
107: R39 Segments (Tables) HTML 131K
134: R40 Net Income (Loss) Per Share (Tables) HTML 325K
118: R41 Inventories (Tables) HTML 66K
30: R42 Prepaid Expenses and Other Current Assets (Tables) HTML 74K
88: R43 Property, Plant and Equipment, Net (Tables) HTML 106K
136: R44 Leases (Tables) HTML 238K
121: R45 Goodwill (Tables) HTML 64K
31: R46 Distribution Agreements, Net (Tables) HTML 87K
89: R47 Customer Lists and Other Identifiable Intangible HTML 62K
Assets, Net (Tables)
138: R48 Other Accrued Liabilities (Tables) HTML 87K
116: R49 Derivative Financial Instruments (Tables) HTML 133K
92: R50 Fair Values of Financial Instruments (Tables) HTML 262K
151: R51 Income Taxes (Tables) HTML 352K
64: R52 Benefit Plans (Tables) HTML 687K
47: R53 Other Liabilities (Tables) HTML 70K
90: R54 Debt (Tables) HTML 158K
149: R55 Commitments and Contingencies (Tables) HTML 68K
63: R56 Risks and Uncertainties (Tables) HTML 101K
46: R57 Capital Transactions (Tables) HTML 75K
94: R58 Accumulated Other Comprehensive Income (Loss) HTML 495K
(Tables)
147: R59 Supplemental Disclosures of Cash Flow Information HTML 168K
(Tables)
85: R60 Quarterly Financial Data (Unaudited) (Tables) HTML 258K
25: R61 Description of Business and Summary of Significant HTML 99K
Accounting Policies - Additional Information
(Detail)
127: R62 Piedmont Coca-Cola Bottling Partnership - HTML 88K
Additional Information (Detail)
143: R63 Related Party Transactions - Additional HTML 130K
Information (Detail)
81: R64 Related Party Transactions - Summary of HTML 76K
Significant Transactions between Company and The
Coca-Cola Company (Detail)
21: R65 Related Party Transactions - Summary of Liability HTML 58K
to Estimated Fair Value of Contingent
Consideration (Detail)
124: R66 Related Party Transactions - Minimum Rentals and HTML 58K
Contingent Rental Payments (Detail)
140: R67 Revenue Recognition - Additional Information HTML 62K
(Detail)
79: R68 Revenue Recognition - Disaggregation of Revenue HTML 66K
from Contracts with Customers (Detail)
28: R69 Segments - Additional Information (Detail) HTML 49K
39: R70 Segments - Summary of Financial Information by HTML 77K
Segment (Detail)
54: R71 Net Income (Loss) Per Share - Computation of Basic HTML 117K
Net Loss Per Share and Diluted Net Loss Per Share
(Detail)
154: R72 Net Income (Loss) Per Share - Computation of Basic HTML 50K
Net Loss Per Share and Diluted Net Loss Per Share
(Parenthetical) (Detail)
97: R73 Inventories - Summary of Inventories (Detail) HTML 57K
43: R74 Prepaid Expenses and Other Current Assets - HTML 61K
Summary of Prepaid Expenses and Other Current
Assets (Detail)
58: R75 Property, Plant and Equipment, Net - Principal HTML 95K
Categories and Estimated Useful Lives of Property,
Plant and Equipment, Net (Detail)
157: R76 Property, Plant and Equipment, Net - Additional HTML 48K
Information (Detail)
100: R77 Leases - Additional Information (Detail) HTML 64K
36: R78 Leases - Summary of Weighted Average Remaining HTML 55K
Lease Term and Weighted Average Discount Rate for
Population of Leases (Detail)
60: R79 Leases - Summary of Balances Related to Lease HTML 68K
Portfolio within Consolidated Statement of
Operations (Detail)
40: R80 Leases - Summary of Balances Related to Lease HTML 58K
Portfolio within Consolidated Statement of
Operations (Parenthetical) (Detail)
55: R81 Leases - Summary of Future Minimum Lease Payments HTML 118K
For Noncancelable Operating And Financing Leases
(Detail)
155: R82 Leases - Summary of Future Minimum Lease Payments HTML 110K
For Noncancelable Operating And Capital Leases
(Detail)
98: R83 Leases - Summary of Balances Related to Lease HTML 59K
Portfolio within Consolidated Statement of Cash
Flow (Detail)
41: R84 Leases - Summary of Balances Related to Lease HTML 51K
Portfolio within Consolidated Statement of Cash
Flow (Parenthetical) (Detail)
56: R85 Goodwill - Schedule of Reconciliation of Activity HTML 52K
for Goodwill (Detail)
156: R86 Goodwill - Additional Information (Detail) HTML 49K
99: R87 Distribution Agreements, Net - Additional HTML 68K
Information (Detail)
38: R88 Distribution Agreements, Net - Other Identifiable HTML 54K
Intangible Assets Net (Detail)
62: R89 Distribution Agreements, Net - Reconciliation of HTML 58K
Activity for Other Identifiable Intangible Assets
Net (Detail)
84: R90 Customer Lists and Other Identifiable Intangible HTML 68K
Assets, Net - Additional Information (Detail)
24: R91 Customer Lists and Other Identifiable Intangible HTML 54K
Assets, Net - Other Identifiable Intangible Assets
(Detail)
126: R92 Other Accrued Liabilities - Summary of Other HTML 77K
Accrued Liabilities (Detail)
142: R93 Derivative Financial Instruments - Summary of HTML 54K
Pre-Tax Changes in Fair Value (Detail)
83: R94 Derivative Financial Instruments - Summary of Fair HTML 60K
Values and Classification in Consolidated Balance
Sheets of Derivative Instruments (Detail)
23: R95 Derivative Financial Instruments - Summary of HTML 54K
Gross Derivative Assets and Gross Derivative
Liabilities in Consolidated Balance Sheets
(Detail)
125: R96 Derivative Financial Instruments - Summary of HTML 51K
Outstanding Commodity Derivative Agreements
(Detail)
141: R97 Fair Values of Financial Instruments - Additional HTML 71K
Information (Detail)
77: R98 Fair Values of Financial Instruments - Deferred HTML 103K
Compensation Plan Commodity Hedging Agreements and
Acquisition Related Contingent Consideration
(Detail)
26: R99 Fair Values of Financial Instruments - Summary of HTML 63K
Reconciliation of Acquisition Related Contingent
Consideration (Detail)
96: R100 Income Taxes - Significant Components of the HTML 70K
Provision for Income Taxes (Detail)
148: R101 Income Taxes - Additional Information (Detail) HTML 82K
66: R102 Income Taxes - Reconciliation of Income Tax HTML 114K
Expense (benefit) at Statutory Federal Rate to
Actual Income Tax Expense (Benefit) (Detail)
45: R103 Income Taxes - Reconciliation of Uncertain Tax HTML 53K
Positions Excluding Accrued Interest (Detail)
93: R104 Income Taxes - Temporary Differences and HTML 111K
Carryforwards that Comprised Deferred Income Tax
Assets and Liabilities (Detail)
146: R105 Benefit Plans - Additional Information (Detail) HTML 130K
65: R106 Benefit Plans - Liability Under Executive Benefit HTML 70K
Plans (Detail)
44: R107 Benefit Plans - Changes in Projected Benefit HTML 62K
Obligation (Detail)
91: R108 Benefit Plans - Change in Plan Assets (Detail) HTML 62K
150: R109 Benefit Plans - Funded Status (Detail) HTML 72K
137: R110 Benefit Plans - Amounts Recognized in the HTML 54K
Consolidated Balance Sheet (Detail)
115: R111 Benefit Plans - Net Periodic Pension Cost HTML 65K
(Benefit) (Detail)
32: R112 Benefit Plans - Significant Assumptions Used HTML 85K
(Detail)
86: R113 Benefit Plans - Anticipated Future Pension Benefit HTML 64K
Payments (Detail)
139: R114 Benefit Plans - Weighted Average Expected HTML 70K
Long-Term Rate of Return (Detail)
117: R115 Benefit Plans - Weighted Average Expected HTML 52K
Long-Term Rate of Return (Parenthetical) (Detail)
34: R116 Benefit Plans - Summary of Pension Plan Assets HTML 57K
Held in Trust Funds (Detail)
87: R117 Benefit Plans - Reconciliation of Benefit HTML 67K
Obligation (Detail)
135: R118 Benefit Plans - Reconciliation of Plan Assets Fair HTML 64K
Value (Detail)
120: R119 Benefit Plans - Components of Net Periodic HTML 63K
Postretirement Benefit Cost (Detail)
35: R120 Benefit Plans - A 1% Increase or Decrease in HTML 55K
Annual Healthcare Cost (Detail)
59: R121 Benefit Plans - Reconciliation of Amounts in HTML 74K
Accumulated Other Comprehensive Loss That Have Not
Yet Been Recognized as Components of Net Periodic
Benefit Cost (Detail)
152: R122 Benefit Plans - Amounts in Accumulated Other HTML 58K
Comprehensive Loss Expected to be Recognized as
Components of Net Periodic Pension Costs or
Postretirement Benefits Costs in 2020 (Detail)
101: R123 Benefit Plans - Multiemployer Plans (Detail) HTML 59K
37: R124 Other Liabilities - Summary of Other Liabilities HTML 58K
(Detail)
61: R125 Debt - Summary of Debt (Detail) HTML 94K
153: R126 Debt - Summary of Debt (Parenthetical) (Detail) HTML 56K
102: R127 Debt - Principal Maturities of Debt Outstanding HTML 58K
(Detail)
42: R128 Debt - Additional Information (Detail) HTML 70K
57: R129 Commitments and Contingencies - Additional HTML 66K
Information (Detail)
80: R130 Commitments and Contingencies - Summary of HTML 52K
Company's Purchases from Manufacturing
Cooperatives (Detail)
29: R131 Risks and Uncertainties - Additional Information HTML 72K
(Detail)
123: R132 Risks and Uncertainties - Summary of Percentage of HTML 62K
Total Bottle/Can Sales Volume and Percentage Total
Net Sales to Its Largest Customers (Detail)
145: R133 Capital Transactions - Additional Information HTML 68K
(Detail)
78: R134 Capital Transactions - Summary of the Awards Each HTML 59K
Year (Detail)
27: R135 Accumulated Other Comprehensive Income (Loss) - HTML 93K
Summary of Accumulated Other Comprehensive (Loss)
(Detail)
122: R136 Accumulated Other Comprehensive Income (Loss) - HTML 98K
Summary of Impact on Income Statement Line Items
(Detail)
144: R137 Supplemental Disclosures of Cash Flow Information HTML 72K
- Summary of Changes in Current Assets and Current
Liabilities Affecting Cash Flows (Detail)
82: R138 Supplemental Disclosures of Cash Flow Information HTML 50K
- Net Cash Payments (Refunds) During the Period
for Interest and Income Taxes (Detail)
22: R139 Supplemental Disclosures of Cash Flow Information HTML 70K
- Significant Noncash Investing and Financing
Activities (Detail)
70: R140 Quarterly Financial Data (Unaudited) - Schedule of HTML 73K
Quarterly Financial Data (Detail)
53: R141 Quarterly Financial Data (Unaudited) - Schedule of HTML 56K
Quarterly Financial Data - Additional Information
(Detail)
103: R142 Schedule II - Valuation and Qualifying Accounts HTML 63K
and Reserves (Detail)
33: XML IDEA XML File -- Filing Summary XML 318K
105: XML XBRL Instance -- coke-10k_20191229_htm XML 9.42M
95: EXCEL IDEA Workbook of Financial Reports XLSX 187K
12: EX-101.CAL XBRL Calculations -- coke-20191229_cal XML 435K
13: EX-101.DEF XBRL Definitions -- coke-20191229_def XML 1.58M
14: EX-101.LAB XBRL Labels -- coke-20191229_lab XML 2.49M
15: EX-101.PRE XBRL Presentations -- coke-20191229_pre XML 2.16M
11: EX-101.SCH XBRL Schema -- coke-20191229 XSD 403K
119: JSON XBRL Instance as JSON Data -- MetaLinks 660± 1.13M
16: ZIP XBRL Zipped Folder -- 0001564590-20-006432-xbrl Zip 602K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-K
|
i ☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the fiscal year ended |
or
|
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: i 0-9286
i COCA-COLA CONSOLIDATED, INC.
(Exact name of registrant as specified in its charter)
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i Delaware |
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i 56-0950585 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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|
|
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i 4100 Coca-Cola Plaza |
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i 28211 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: i (704) i 557-4400
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
i Common Stock, $1.00 Par Value |
i COKE |
i The NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. i Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ i No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
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|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes i ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
|
|
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Market Value as of June 28, 2019 |
|
Common Stock, $l.00 Par Value |
|
$ i 1,394,350,587 |
|
Class B Common Stock, $l.00 Par Value |
|
* |
*No market exists for the Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act. The Class B Common Stock is convertible into Common Stock on a share-for-share basis at the option of the holder.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
|
Class |
|
Outstanding as of January 26, 2020 |
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Common Stock, $1.00 Par Value |
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i 7,141,447 |
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Class B Common Stock, $1.00 Par Value |
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i 2,232,242 |
Documents Incorporated by Reference
iPortions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference in Part III.
COCA-COLA CONSOLIDATED, INC.
ANNUAL REPORT ON FORM 10‑K
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2019
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Item 5. |
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Item 6. |
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Item 7. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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43 |
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Item 9. |
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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89 |
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Item 9A. |
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Item 9B. |
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89 |
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Item 10. |
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90 |
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Item 11. |
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90 |
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Item 12. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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90 |
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Item 13. |
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Certain Relationships and Related Transactions, and Director Independence |
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90 |
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Item 14. |
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90 |
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Item 15. |
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98 |
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2
PART I
Introduction
Coca‑Cola Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we,” “our” or “us”), distributes, markets and manufactures nonalcoholic beverages in territories spanning 14 states and the District of Columbia. The Company was incorporated in 1980 and, together with its predecessors, has been in the nonalcoholic beverage manufacturing and distribution business since 1902. We are the largest Coca‑Cola bottler in the United States. Approximately 85% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage companies, including BA Sports Nutrition, LLC (“BodyArmor”), Keurig Dr Pepper Inc. (“Dr Pepper”) and Monster Energy Company (“Monster Energy”). Our purpose is to honor God, to serve others, to pursue excellence and to grow profitably.
Ownership
J. Frank Harrison, III, the Chairman of the Board of Directors and Chief Executive Officer of the Company, together with the trustees of certain trusts established for the benefit of certain relatives of the late J. Frank Harrison, Jr., control shares representing approximately 86% of the total voting power of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis. As of December 29, 2019, The Coca‑Cola Company owned approximately 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have its designee proposed by the Company for nomination to the Company’s Board of Directors, and J. Frank Harrison, III and the trustees of the J. Frank Harrison, Jr. family trusts described above, have agreed to vote the shares of the Company’s Class B Common Stock which they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.
Beverage Products
We offer a range of nonalcoholic beverage products and flavors designed to meet the demands of our consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.
Our sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Other sales include sales to other Coca‑Cola bottlers, “post-mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.
The following table sets forth some of our principal products, including products of The Coca‑Cola Company and products licensed to us by other beverage companies:
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Sparkling Beverages |
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Still Beverages |
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The Coca-Cola Company Products: |
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Barqs Root Beer |
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Fanta |
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Core Power |
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Honest Tea |
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Cherry Coke |
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Fanta Zero |
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Dasani |
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Hubert’s Lemonade |
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Cherry Coke Zero |
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Fresca |
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Dasani Flavors |
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Minute Maid Juices To Go |
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Coca-Cola |
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Mello Yello |
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Dasani Sparkling |
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Peace Tea |
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Coca-Cola Life |
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Mello Yello Zero |
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FUZE |
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POWERade |
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Coca-Cola Orange Vanilla |
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Minute Maid Sparkling |
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glacéau smartwater |
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POWERade Zero |
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Coca-Cola Vanilla |
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Pibb Xtra |
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glacéau vitaminwater |
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Tum-E Yummies |
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Coca-Cola Zero Sugar |
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Seagrams Ginger Ale |
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Gold Peak Tea |
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Yup Milk |
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Diet Barqs Root Beer |
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Sprite |
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Hi-C |
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ZICO |
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Diet Coke |
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Sprite Zero |
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Products Licensed to Us by Other Beverage Companies: |
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Diet Dr Pepper |
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BodyArmor products |
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Monster Energy products |
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Dr Pepper |
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Dunkin’ Donuts Iced Coffee |
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NOS® |
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Sundrop |
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Full Throttle |
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Reign products |
3
System Transformation
In October 2017, we completed a multi-year series of transactions with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc., an independent bottler that is unrelated to us, to significantly expand our distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets. Final post-closing adjustments in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement were completed by 2018 for all System Transformation transactions.
Following the completion of the System Transformation, we are party to several key agreements that (i) provide us with rights to distribute, market and manufacture beverage products and (ii) coordinate our role in the North American Coca‑Cola system. The following sections summarize certain of these key agreements.
Beverage Distribution and Manufacturing Agreements
We have rights to distribute, promote, market and sell certain nonalcoholic beverages of The Coca‑Cola Company pursuant to a comprehensive beverage agreement with The Coca‑Cola Company and CCR entered into on March 31, 2017 (as amended, the “CBA”). Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in distribution territories the Company acquired from CCR as part of the System Transformation, but excluding territories the Company acquired in an exchange transaction. In addition to customary termination and default rights, the CBA requires us to make ongoing capital expenditures in our distribution business and to meet certain minimum volume requirements, gives The Coca-Cola Company certain approval and other rights in connection with a sale of the Company or of the distribution business of the Company and prohibits us from producing, manufacturing, preparing, packaging, distributing, selling, dealing in or otherwise using or handling any beverages, beverage components or other beverage products other than the products of The Coca‑Cola Company and expressly permitted cross-licensed brands without the consent of The Coca-Cola Company.
We also have rights to manufacture, produce and package certain beverages and beverage products bearing trademarks of The Coca‑Cola Company at our manufacturing plants pursuant to a regional manufacturing agreement with The Coca‑Cola Company entered into on March 31, 2017 (as amended, the “RMA”). These beverages may be distributed by us for our own account in accordance with the CBA or may be sold by us to certain other U.S. Coca‑Cola bottlers and to the Coca‑Cola North America division of The Coca‑Cola Company (“CCNA”) in accordance with the RMA. Pursuant to the RMA, the prices, or certain elements of the formulas used to determine the prices, that the Company charges for these sales to CCNA or other U.S. Coca‑Cola bottlers are unilaterally established by CCNA from time to time. The RMA contains provisions restricting the sale of the Company or the manufacturing business of the Company, requiring minimum capital expenditures in our manufacturing business, limiting our ability to manufacture products other than the products of The Coca‑Cola Company and expressly permitted cross-licensed brands without the consent of The Coca‑Cola Company and allowing for the termination of the RMA which are similar to those contained in the CBA.
These agreements are the principal agreements we have with The Coca‑Cola Company and its affiliates following completion of the System Transformation. In addition to our agreements with The Coca‑Cola Company and CCR, we also have rights to manufacture and/or distribute certain beverage brands owned by other beverage companies, including Dr Pepper and Monster Energy, pursuant to agreements with such other beverage companies. Our distribution agreements with Dr Pepper permit us to distribute Dr Pepper beverage brands, as well as certain post-mix products of Dr Pepper. Certain of our agreements with Dr Pepper also authorize us to manufacture certain Dr Pepper beverage brands. Our distribution agreement with Monster Energy grants us the rights to distribute certain products offered, packaged and/or marketed by Monster Energy. Similar to the CBA, these beverage agreements contain restrictions on the use of trademarks, approved bottles, cans and labels and the sale of imitations or substitutes, as well as termination for cause provisions. Sales of beverages under these agreements with other beverage companies represented approximately 15%, 12% and 7% of our bottle/can sales volume to retail customers for 2019, 2018 and 2017, respectively.
Finished Goods Supply Arrangements
We have finished goods supply arrangements with other U.S. Coca‑Cola bottlers to buy and sell finished products produced under trademarks owned by The Coca‑Cola Company in accordance with the RMA, pursuant to which the prices, or certain elements of the formulas used to determine the prices, for such finished products are unilaterally established by CCNA from time to time. In most instances, the Company’s ability to negotiate the prices at which it purchases finished goods bearing trademarks owned by
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The Coca‑Cola Company from, and the prices at which it sells such finished goods to, other U.S. Coca‑Cola bottlers is limited pursuant to these pricing provisions.
Other Agreements Related to the Coca‑Cola System
As part of the System Transformation process, we entered into agreements with The Coca‑Cola Company, CCR and other Coca‑Cola bottlers regarding product supply, information technology services and other aspects of the North American Coca‑Cola system, as described below. Many of these agreements involve new system governance structures providing for greater participation and involvement by bottlers, which require increased demands on the Company’s management and more collaboration and alignment by the participating bottlers in order to successfully implement Coca‑Cola system plans and strategies.
Incidence-Based Pricing Agreement with The Coca‑Cola Company
The Company has an incidence-based pricing agreement with The Coca‑Cola Company, which establish the prices charged by The Coca‑Cola Company to the Company for (i) concentrates of sparkling and certain still beverages produced by the Company and (ii) certain purchased still beverages. Under the incidence-based pricing agreement, the prices charged by The Coca‑Cola Company are impacted by a number of factors, including the incidence rate in effect, our pricing and sales of finished products, the channels in which the finished products are sold and package mix and in the case of products sold by The Coca‑Cola Company to us in finished form, the cost of goods for certain elements used in such products. The Coca‑Cola Company has no rights under the incidence-based pricing agreement to establish the resale prices at which we sell products, but does have the right to establish certain pricing under other agreements, including the RMA.
National Product Supply Governance Agreement
We are a member of a national product supply group (the “NPSG”), comprised of The Coca‑Cola Company and certain other Coca‑Cola bottlers who are regional producing bottlers in The Coca‑Cola Company’s national product supply system (collectively with the Company, the “NPSG Members”), pursuant to a national product supply governance agreement executed in 2015 with The Coca‑Cola Company and certain other Coca‑Cola bottlers (as amended, the “NPSG Governance Agreement”). The stated objectives of the NPSG include, among others, (i) Coca‑Cola system strategic infrastructure investment and divestment planning; (ii) network optimization of plant to distribution center sourcing; and (iii) new product/packaging infrastructure planning.
Under the NPSG Governance Agreement, the NPSG Members established certain governance mechanisms, including a governing board (the “NPSG Board”) comprised of representatives of certain NPSG Members. The NPSG Board makes and/or oversees and directs certain key decisions regarding the NPSG. Pursuant to the decisions of the NPSG Board made from time to time and subject to the terms and conditions of the NPSG Governance Agreement, each NPSG Member is required to make certain investments in its respective manufacturing assets and to implement Coca‑Cola system strategic investment opportunities consistent with the NPSG Governance Agreement. We are also obligated to pay a certain portion of the costs of operating the NPSG.
CONA Services LLC
We are a member of CONA Services LLC (“CONA”), an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. We are party to a master services agreement with CONA, pursuant to which CONA agreed to make available, and we became authorized to use, the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. As part of making the CONA System available to us, CONA provides us with certain business process and information technology services, including the planning, development, management and operation of the CONA System in connection with our direct store delivery and manufacture of products. In exchange for our rights to use the CONA System and receive CONA-related services, we are charged service fees by CONA, which we are obligated to pay even if we are not using the CONA System for all or any portion of our distribution and manufacturing operations.
Amended and Restated Ancillary Business Letter
As part of the System Transformation, we entered into an amended and restated ancillary business letter with The Coca‑Cola Company on March 31, 2017 (the “Ancillary Business Letter”), pursuant to which we were granted advance waivers to acquire or develop certain lines of business involving the preparation, distribution, sale, dealing in or otherwise using or handling of certain beverage products that would otherwise be prohibited under the CBA or any similar agreement.
Under the Ancillary Business Letter, subject to certain limited exceptions, we were prohibited from acquiring or developing any line of business inside or outside of our territories governed by the CBA or any similar agreement prior to January 1, 2020 without the
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consent of The Coca‑Cola Company. After January 1, 2020, the consent of The Coca‑Cola Company, which consent may not be unreasonably withheld, would be required for us to acquire or develop (i) any grocery, quick service restaurant, or convenience and petroleum store business engaged in the sale of beverages, beverage components and other beverage products not otherwise authorized or permitted by the CBA or (ii) any other line of business for which beverage activities otherwise prohibited under the CBA represent more than a certain threshold of net sales (subject to certain limited exceptions).
Markets Served and Facilities
As of December 29, 2019, we served approximately 66 million consumers within our territories, which comprised five principal markets. Certain information regarding each of these markets follows:
|
Market |
|
Description |
|
Approximate Population |
|
Manufacturing Plants |
|
Number of Distribution Centers |
|
Carolinas |
|
The majority of North Carolina and South Carolina and portions of southern Virginia, including Boone, Hickory, Mount Airy, Charlotte, Raleigh, Winston-Salem, Greensboro, Fayetteville, Greenville and New Bern, North Carolina, Conway, Marion, Charleston, Columbia, Greenville and Ridgeland, South Carolina and surrounding areas. |
|
15 million |
|
Charlotte, NC |
|
18 |
|
Central |
|
A significant portion of northeastern Kentucky, the majority of West Virginia and portions of southern Ohio, southeastern Indiana and southwestern Pennsylvania, including Lexington, Louisville and Pikeville, Kentucky, Beckley, Bluefield, Clarksburg, Elkins, Parkersburg, Craigsville and Charleston, West Virginia, Cincinnati and Portsmouth, Ohio and surrounding areas. |
|
8 million |
|
Cincinnati, OH |
|
13 |
|
Mid-Atlantic |
|
The entire state of Maryland, the majority of Virginia and Delaware, the District of Columbia and a portion of south-central Pennsylvania, including Easton, Salisbury, Capitol Heights, Baltimore, Hagerstown and Cumberland, Maryland, Norfolk, Staunton, Alexandria, Roanoke, Richmond, Yorktown and Fredericksburg, Virginia and surrounding areas. |
|
23 million |
|
Baltimore, MD Silver Spring, MD Roanoke, VA Sandston, VA |
|
12 |
|
Mid-South |
|
A significant portion of central and southern Arkansas and Tennessee and portions of western Kentucky and northwestern Mississippi, including Little Rock and West Memphis, Arkansas, Cleveland, Cookeville, Johnson City, Knoxville, Memphis and Morristown, Tennessee, Paducah, Kentucky and surrounding areas. |
|
7 million |
|
West Memphis, AR Memphis, TN Nashville, TN |
|
10 |
|
Mid-West |
|
A significant portion of Indiana and Ohio and a portion of southeastern Illinois, including Anderson, Bloomington, Evansville, Fort Wayne, Indianapolis, Lafayette and South Bend, Indiana, Akron, Columbus, Dayton, Elyria, Lima, Mansfield, Toledo, Willoughby and Youngstown, Ohio and surrounding areas. |
|
13 million |
|
Indianapolis, IN Portland, IN Twinsburg, OH |
|
18 |
|
Total |
|
|
|
66 million |
|
12 |
|
71 |
The Company is also a shareholder in South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative managed by the Company. SAC is located in Bishopville, South Carolina, and the Company utilizes a portion of the production capacity from the Bishopville manufacturing plant.
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Raw Materials
In addition to concentrates purchased from The Coca‑Cola Company and other beverage companies for use in our beverage manufacturing, we also purchase sweetener, carbon dioxide, plastic bottles, cans, closures and other packaging materials, as well as equipment for the distribution, marketing and production of nonalcoholic beverages.
We purchase all of our plastic bottles from Southeastern Container and Western Container, two manufacturing cooperatives we co-own with several other Coca‑Cola bottlers, and all of our aluminum cans from two domestic suppliers.
Along with all other Coca‑Cola bottlers in the United States, we are a member of Coca-Cola Bottlers’ Sales & Services Company, LLC (“CCBSS”), which was formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system in the United States. CCBSS negotiates the procurement for the majority of our raw materials, excluding concentrate, and we receive a rebate from CCBSS for the purchase of these raw materials.
We are exposed to price risk on commodities such as aluminum, corn, PET resin (a petroleum- or plant-based product) and fuel, which affects the cost of raw materials used in the production of our finished products. Examples of the raw materials affected include aluminum cans and plastic bottles used for packaging and high fructose corn syrup used as a product ingredient. Further, we are exposed to commodity price risk on oil, which impacts our cost of fuel used in the movement and delivery of our products. We participate in commodity hedging and risk mitigation programs, including programs administered by CCBSS and programs we administer. In addition, there are no limits on the prices The Coca‑Cola Company and other beverage companies can charge for concentrate.
Customers and Marketing
The Company’s products are sold and distributed through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. All of the Company’s beverage sales are to customers in the United States.
The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales that such volume represents:
|
|
|
Fiscal Year |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Approximate percent of the Company’s total bottle/can sales volume |
|
|
|
|
|
|
|
|
|
Wal-Mart Stores, Inc. |
|
|
19 |
% |
|
|
19 |
% |
|
The Kroger Company |
|
|
12 |
% |
|
|
11 |
% |
|
Total approximate percent of the Company’s total bottle/can sales volume |
|
|
31 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
Approximate percent of the Company’s total net sales |
|
|
|
|
|
|
|
|
|
Wal-Mart Stores, Inc. |
|
|
13 |
% |
|
|
14 |
% |
|
The Kroger Company |
|
|
8 |
% |
|
|
8 |
% |
|
Total approximate percent of the Company’s total net sales |
|
|
21 |
% |
|
|
22 |
% |
The loss of Wal-Mart Stores, Inc. or The Kroger Company as a customer could have a material adverse effect on the operating and financial results of the Company. No other customer represented greater than 10% of the Company’s total net sales or would impose a material adverse effect on the operating or financial results of the Company should they cease to be a customer of the Company.
New brand and product introductions, packaging changes and sales promotions are the primary sales and marketing practices in the nonalcoholic beverage industry and have required, and are expected to continue to require, substantial expenditures. Recent brand introductions include Reign High-Performance Energy Drink and glacéau smartwater alkaline and antioxidant. Recent product introductions in our business include new flavor varieties within certain brands such as Coca‑Cola Orange Vanilla and Orange Vanilla Zero, Coca‑Cola Cinnamon, Monster Ultra Paradise and Powerade White Cherry. Recent packaging introductions include mini can variety packs for club stores and certain 10‑pack can configurations.
We sell our products primarily in non-refillable bottles and cans, in varying package configurations from market to market. For example, there may be as many as 26 different packages for Diet Coke within a single geographic area. Bottle/can sales volume to retail customers during 2019 was approximately 52% bottles and 48% cans.
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We rely extensively on advertising in various media outlets, primarily online, television and radio, for the marketing of our products. The Coca‑Cola Company, Dr Pepper and Monster Energy make substantial expenditures on advertising programs in our territories from which we benefit. Although The Coca‑Cola Company and other beverage companies have provided us with marketing funding support in the past, our beverage agreements generally do not obligate such funding.
We also expend substantial funds on our own behalf for extensive local sales promotions of our products. Historically, these expenses have been partially offset by marketing funding support provided to us by The Coca‑Cola Company and other beverage companies in support of a variety of marketing programs, such as point-of-sale displays and merchandising programs. We consider the funds we expend for marketing and merchandising programs necessary to maintain or increase revenue.
In addition to our marketing and merchandising programs, we believe a sustained and planned charitable giving program to support the communities we serve is an essential component to the success of our brand and, by extension, our net sales. In 2019, the Company made cash donations of approximately $8.5 million to various charities and donor-advised funds in light of the Company’s financial performance, distribution territory footprint and future business prospects. The Company intends to continue its charitable contributions in future years, subject to the Company’s financial performance and other business factors.
Seasonality
Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year. We believe that we and other manufacturers from whom we purchase finished products have adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods. See “Item 2. Properties” for information relating to utilization of our manufacturing plants. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality.
Competition
The nonalcoholic beverage industry is highly competitive for both sparkling and still beverages. Our competitors include bottlers and distributors of nationally and regionally advertised and marketed products, as well as bottlers and distributors of private label beverages. Our principal competitors include local bottlers of PepsiCo, Inc. products and, in some regions, local bottlers of Dr Pepper products.
The principal methods of competition in the nonalcoholic beverage industry are new brand and product introductions, point-of-sale merchandising, new vending and dispensing equipment, packaging changes, pricing, sales promotions, product quality, retail space management, customer service, frequency of distribution and advertising. We believe we are competitive in our territories with respect to these methods of competition.
Government Regulation
Our businesses are subject to various laws and regulations administered by federal, state and local governmental agencies of the United States, including laws and regulations governing the production, storage, distribution, sale, display, advertising, marketing, packaging, labeling, content, quality and safety of our products, our occupational health and safety practices, and the transportation and use of many of our products.
We are required to comply with a variety of U.S. laws and regulations, including, but not limited to: the Federal Food, Drug and Cosmetic Act and various state laws governing food safety; the Food Safety Modernization Act; the Occupational Safety and Health Act; the Clean Air Act; the Clean Water Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Federal Motor Carrier Safety Act; the Lanham Act; various federal and state laws and regulations governing competition and trade practices; various federal and state laws and regulations governing our employment practices, including those related to equal employment opportunity, such as the Equal Employment Opportunity Act and the National Labor Relations Act; and laws regulating the sale of certain of our products in schools.
As a manufacturer, distributor and seller of beverage products of The Coca‑Cola Company and other beverage companies in exclusive territories, we are subject to antitrust laws of general applicability. However, pursuant to the United States Soft Drink Interbrand Competition Act, soft drink bottlers, such as us, are permitted to have exclusive rights to manufacture, distribute and sell a soft drink product in a defined geographic territory if that soft drink product is in substantial and effective competition with other products of the same general class in the market. We believe such competition exists in each of the exclusive geographic territories in the United States in which we operate.
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In response to growing health, nutrition and obesity concerns for today’s youth, a number of states and local governments have regulations restricting the sale of soft drinks and other foods in schools, particularly elementary, middle and high schools. Many of these restrictions have existed for several years in connection with subsidized meal programs in schools. Restrictive legislation, if widely enacted, could have an adverse impact on our products, image and reputation.
Most beverage products sold by the Company are classified as food or food products and are therefore eligible for purchase using supplemental nutrition assistance program (“SNAP”) benefits by consumers purchasing them for home consumption. Energy drinks with a nutrition facts label are also classified as food and are eligible for purchase for home consumption using SNAP benefits, whereas energy drinks classified as a supplement by the United States Food and Drug Administration (the “FDA”) are not. Regulators may restrict the use of benefit programs, including SNAP, to purchase certain beverages and foods currently classified as food or food products.
Certain jurisdictions in which our products are sold have imposed, or are considering imposing, taxes, labeling requirements or other limitations on, or regulations pertaining to, the sale of certain of our products, ingredients or substances contained in, or attributes of, our products or commodities used in the manufacture of our products, including certain of our products that contain added sugars or sodium, exceed a specified caloric content or include specified ingredients such as caffeine.
Legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink products in non-refillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers, each in an attempt to reduce solid waste and litter. Similarly, we are aware of proposed legislation that would impose fees or taxes on various types of containers that are used in our business. We are not currently impacted by the policies in these types of proposed legislation, but it is possible that similar or more restrictive legal requirements may be proposed or enacted within our territories in the future.
We are also subject to federal and local environmental laws, including laws related to water consumption and treatment, wastewater discharge and air emissions. Our facilities must comply with the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and other federal and state laws regarding handling, storage, release and disposal of wastes generated on-site and sent to third-party owned and operated off-site licensed facilities.
Environmental Remediation
We do not currently have any material commitments for environmental compliance or environmental remediation for any of our properties. We do not believe compliance with enacted or adopted federal, state and local provisions pertaining to the discharge of materials into the environment or otherwise relating to the protection of the environment will have a material adverse impact on our consolidated financial statements or our competitive position.
Employees
As of December 29, 2019, we had approximately 16,900 employees, of which approximately 14,800 were full-time and 2,100 were part-time. Approximately 14% of our labor force is covered by collective bargaining agreements.
Exchange Act Reports
Our website is www.cokeconsolidated.com and we make available free of charge through the investor relations portion of our website our Annual Report on Form 10-K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and any amendments to these reports, as well as proxy statements and other information. These documents are available on our website as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). The information provided on our website is not part of this report and is not incorporated herein by reference.
The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
In addition to other information in this report, the following risk factors should be considered carefully in evaluating the Company’s business. The Company’s business, financial condition or results of operations could be materially and adversely affected by any of these risks.
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The Company’s business and results of operations may be adversely affected by increased costs, disruption of supply or shortages of raw materials, fuel and other supplies.
Raw material costs, including the costs for plastic bottles, aluminum cans, resin and high fructose corn syrup, have historically been subject to significant price volatility and may continue to be in the future. International or domestic geopolitical or other events, including the imposition of tariffs and/or quotas by the U.S. government on any of these raw materials, could adversely impact the supply and cost of these raw materials to the Company. In addition, there are no limits on the prices The Coca‑Cola Company and other beverage companies can charge for concentrate. If the Company cannot offset higher raw material costs with higher selling prices, effective commodity price hedging, increased sales volume or reductions in other costs, the Company’s results of operations and profitability could be adversely affected.
Continued consolidation among suppliers of certain of the Company’s raw materials could have an adverse effect on the Company’s ability to negotiate the lowest costs and, in light of the Company’s relatively low in-plant raw material inventory levels, has the potential for causing interruptions in the Company’s supply of raw materials and in its manufacture of finished goods.
The Company purchases all of its plastic bottles from Southeastern Container and Western Container, two manufacturing cooperatives the Company co-owns with several other Coca‑Cola bottlers, and all of its aluminum cans from two domestic suppliers. The inability of these plastic bottle or aluminum can suppliers to meet the Company’s requirements for containers could result in the Company not being able to fulfill customer orders and production demand until alternative sources of supply are located. The Company attempts to mitigate these risks by working closely with key suppliers and by purchasing business interruption insurance where appropriate. Failure of the plastic bottle or aluminum can suppliers to meet the Company’s purchase requirements could negatively impact inventory levels, customer confidence and results of operations, including sales levels and profitability.
The Company uses a combination of internal and external freight shipping and transportation services to transport and deliver products. The Company’s freight cost and the timely delivery of its products may be adversely impacted by a number of factors which could reduce the profitability of the Company’s operations, including driver shortages, reduced availability of independent contractor drivers, higher fuel costs, weather conditions, traffic congestion, increased government regulation and other matters.
In addition, the Company uses significant amounts of fuel for its delivery fleet and other vehicles used in the distribution of its products. International or domestic geopolitical or other events could impact the supply and cost of fuel and the timely delivery of the Company’s products to its customers. Although the Company strives to reduce fuel consumption and uses commodity hedges to manage the Company’s fuel costs, there can be no assurance the Company will succeed in limiting the impact of fuel price volatility on the Company’s business or future cost increases, which could reduce the profitability of the Company’s operations.
The Company continues to make significant reinvestments in its business in order to evolve its operating model and to accommodate future growth and portfolio expansion, including supply chain optimization. The increased costs associated with these reinvestments, the potential for disruption in manufacturing and distribution and the risk the Company may not realize a satisfactory return on its investments could adversely affect the Company’s business, financial condition or results of operations.
The reliance on purchased finished products from external sources could have an adverse impact on the Company’s profitability.
The Company does not, and does not plan to, manufacture all products it distributes and, therefore, remains reliant on purchased finished products from external sources to meet customer demand. As a result, the Company is subject to incremental risk, including, but not limited to, product quality and availability, price variability and production capacity shortfalls for externally purchased finished products, which could have an impact on the Company’s profitability and customer relationships. In most instances, the Company’s ability to negotiate the prices at which it purchases finished products from other U.S. Coca‑Cola bottlers is limited pursuant to The Coca‑Cola Company’s right to unilaterally establish the prices, or certain elements of the formulas used to determine the prices, for such finished products under the RMA, which could have an adverse impact on the Company’s profitability.
Changes in public and consumer perception and preferences, including concerns related to obesity, artificial ingredients, product safety and sustainability and brand reputation, could reduce demand for the Company’s products and reduce profitability.
The Company’s business depends substantially on consumer tastes and preferences that change in often unpredictable ways. Over the past several years, consumer preferences have shifted from sugar-sweetened sparkling beverages to diet sparkling beverages, tea, sports drinks, enhanced water and bottled water as a result of certain health and wellness trends. In addition, consumers, public health officials, public health advocates and government officials have become increasingly concerned about the public health consequences associated with obesity. As the Company distributes, markets and manufactures beverage brands owned by others, the success of the Company’s business depends in large measure on working with The Coca‑Cola Company and other beverage companies. The Company is reliant upon the ability of The Coca‑Cola Company and other beverage companies to develop and introduce product
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innovations to meet the changing preferences of the broad consumer market, and failure to satisfy these consumer preferences could adversely affect the Company’s profitability.
Concerns about perceived negative safety and quality consequences of certain ingredients in the Company’s products, such as non-nutritive sweeteners, may erode consumers’ confidence in the safety and quality of the Company’s products, whether or not justified. The Company’s business is also impacted by changes in consumer concerns or perceptions surrounding the product manufacturing processes and packaging materials, including single-use and other plastic packaging, and the environmental and sustainability impact of such manufacturing processes and packaging. Any of these factors may reduce consumers’ willingness to purchase the Company’s products and any inability on the part of the Company to anticipate or react to such changes could result in reduced demand for the Company’s products or erode the Company’s competitive and financial position and could adversely affect the Company’s business, reputation, financial condition or results of operations.
The Company’s success depends on its ability to maintain consumer confidence in the safety and quality of all of its products. The Company has rigorous product safety and quality standards. However, if beverage products taken to market are or become contaminated or adulterated, the Company may be required to conduct costly product recalls and may become subject to product liability claims and negative publicity, which could cause its business and reputation to suffer.
The Company’s success also depends in large part on its ability and the ability of The Coca‑Cola Company and other beverage companies it works with to maintain the brand image of existing products, build up brand image for new products and brand extensions and maintain its corporate reputation and social license to operate. Engagements by the Company’s executives in social and public policy debates may occasionally be the subject of criticism from advocacy groups that have differing points of view and could result in adverse media and consumer reaction, including product boycotts. Similarly, the Company’s sponsorship relationships and charitable giving program could subject the Company to negative publicity as a result of actual or perceived views of organizations the Company sponsors or supports financially. Likewise, negative postings or comments on social media or networking websites about the Company, The Coca‑Cola Company or one of the products the Company carries, even if inaccurate or malicious, could generate adverse publicity that could damage the reputation of the Company’s brands or the Company.
Changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability, could reduce demand for the Company’s products and reduce profitability.
The Company’s business and properties are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality, labeling and distribution of beverage products. Compliance with or changes in existing laws or regulations could require material expenses and negatively affect our financial results through lower sales or higher costs.
The production and marketing of beverages are subject to the rules and regulations of the FDA and other federal, state and local health agencies, and extensive changes in these rules and regulations could increase the Company’s costs or adversely impact its sales. The Company cannot predict whether any such rules or regulations will be enacted or, if enacted, the impact that such rules or regulations could have on its business.
In response to growing health, nutrition and obesity concerns for today’s youth, a number of states and local governments have regulations restricting the sale of soft drinks and other foods in schools, particularly elementary, middle and high schools. Many of these restrictions have existed for several years in connection with subsidized meal programs in schools. Restrictive legislation, if widely enacted, could have an adverse impact on the Company’s products, image and reputation.
Legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink products in non-refillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers, each in an attempt to reduce solid waste and litter. Similarly, the Company is aware of proposed legislation that would impose fees or taxes on various types of containers used in its business. The Company is not currently impacted by the policies in these types of proposed legislation, but it is possible that similar or more restrictive legal requirements may be proposed or enacted within its distribution territories in the future.
Concerns about perceived negative safety and quality consequences of certain ingredients in the Company’s products, such as non-nutritive sweeteners could result in additional governmental regulations concerning the production, marketing, labeling or availability of the Company’s products or the ingredients in such products, possible new taxes or negative publicity resulting from actual or threatened legal actions against the Company or other companies in the same industry, any of which could damage the reputation of the Company or reduce demand for the Company’s products, which could adversely affect the Company’s profitability.
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The FDA occasionally proposes major changes to the nutrition labels required on all packaged foods and beverages, including those for most of the Company’s products, which could require the Company and its competitors to revise nutrition labels to include updated serving sizes, information about total calories in a beverage product container and information about any added sugars or nutrients. Any pervasive nutrition label changes could increase the Company’s costs and could inhibit sales of one or more of the Company’s major products.
Most beverage products sold by the Company are classified as food or food products and are therefore eligible for purchase using SNAP benefits by consumers purchasing them for home consumption. Energy drinks with a nutrition facts label are also classified as food and are eligible for purchase for home consumption using SNAP benefits, whereas energy drinks classified as a supplement by the FDA are not. Regulators may restrict the use of benefit programs, including SNAP, to purchase certain beverages and foods currently classified as food or food products.
Technology failures or cyberattacks on the Company’s technology systems or the Company’s effective response to technology failures or cyberattacks on its customers, suppliers or other third parties technology systems could disrupt the Company’s operations and negatively impact the Company’s reputation, business, financial condition or results of operations.
The Company increasingly relies on information technology systems to process, transmit and store electronic information. Like most companies, the Company’s information technology systems may be vulnerable to interruption due to a variety of events beyond the Company’s control, including, but not limited to, power outages, computer and telecommunications failures, computer viruses, other malicious computer programs and cyberattacks, denial-of-service attacks, security breaches, catastrophic events such as fires, tornadoes, earthquakes and hurricanes, usage errors by employees and other security issues. In addition, third-party providers of data hosting or cloud services, as well as customers and suppliers, could experience cybersecurity incidents involving data the Company shares with them.
The Company depends heavily upon the efficient operation of technological resources and a failure in these technology systems or controls could negatively impact the Company’s business, financial condition or results of operations. In addition, the Company continuously upgrades and updates current technology or installs new technology. In order to address risks to its technology systems, the Company continues to monitor networks and systems, upgrade security policies and train its employees, and it requires third-party service providers, customers, suppliers and other third parties to do the same. The inability to implement upgrades, updates or installations in a timely manner, to train employees effectively in the use of new or updated technology, or to obtain the anticipated benefits of the Company’s technology could adversely impact the Company’s business, financial condition, results of operations or profitability.
The Company has technology security initiatives and disaster recovery plans in place to mitigate its risk to these vulnerabilities; however, these measures may not be adequate or implemented properly to ensure that the Company’s operations are not disrupted. If the Company’s technology systems are damaged, breached or cease to function properly, it may incur significant financial and other resources to upgrade, repair or replace them, and the Company may suffer interruptions in its business operations, resulting in lost revenues and potential delays in reporting its financial results.
Further, misuse, leakage or falsification of the Company’s information could result in violations of data privacy laws and regulations and damage the reputation and credibility of the Company. The Company may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to the Company, current or former employees, bottling partners, other customers, suppliers or consumers, and may become subject to legal action and increased regulatory oversight. The Company could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information technology systems, including liability for stolen information, increased cybersecurity protection costs, litigation expense and increased insurance premiums.
The Company relies on The Coca‑Cola Company and other beverage companies to invest in the Company through marketing funding and to promote their own company brand identity through external advertising, marketing spending and product innovation. Decreases from historic levels of investment could negatively impact the Company’s business, financial condition and results of operations or profitability.
The Coca‑Cola Company and other beverage companies have historically provided financial support to the Company through marketing funding. While the Company does not believe there will be significant changes to the amount of marketing funding support provided by The Coca‑Cola Company and other beverage companies, the Company’s beverage agreements generally do not obligate such funding and there can be no assurance the historic levels will continue. Decreases in the level of marketing funding provided, material changes in the marketing funding programs’ performance requirements or the Company’s inability to meet the performance requirements for marketing funding could adversely affect the Company’s business, financial condition and results of operations or profitability.
12
In addition, The Coca‑Cola Company and other beverage companies have their own external advertising campaigns, marketing spending and product innovation programs, which directly impact the Company’s operations. Decreases in marketing, advertising and product innovation spending by The Coca‑Cola Company and other beverage companies, or advertising campaigns that are negatively perceived by the public, could adversely impact the sales volume growth and profitability of the Company. While the Company does not believe there will be significant changes in the level of external advertising and marketing spending by The Coca‑Cola Company and other beverage companies, there can be no assurance the historic levels will continue or that advertising campaigns will be positively perceived by the public. The Company’s volume growth is also dependent on product innovation by The Coca‑Cola Company and other beverage companies, and their ability to develop and introduce products that meet consumer preferences.
The Company is a participant in several Coca‑Cola system governance entities, and decisions made by these governance entities may be different than decisions that would have been made by the Company individually. Any failure of these governance entities to function efficiently or on the best behalf of the Company and any failure or delay of the Company to receive anticipated benefits from these governance entities could adversely affect the Company’s business, financial condition and results of operations.
The Company is a member of CONA and party to a master services agreement with CONA, pursuant to which the Company is an authorized user of the CONA System, a uniform information technology system developed to promote operational efficiency and uniformity among all North American Coca‑Cola bottlers. The Company relies on CONA to make necessary upgrades to and resolve ongoing or disaster-related technology issues with the CONA System, and it is limited in its authority and ability to timely resolve errors or to make changes to the CONA software. Any service interruptions of the CONA System could result in increased costs or adversely impact the Company’s results of operations. In addition, because other Coca‑Cola bottlers are also users of the CONA System and would likely experience similar service interruptions, the Company may not be able to have another bottler process orders on its behalf during any such interruption.
The Company is also member of the NPSG, which consists of The Coca‑Cola Company, the Company and certain other Coca‑Cola bottlers. Pursuant to the NPSG Governance Agreement, the Company has agreed to abide by decisions made by the NPSG Board, which include decisions regarding strategic infrastructure investment and divestment planning, optimal national product supply sourcing and new product or packaging infrastructure planning. Although the Company has a representative on the NPSG Board, the Company cannot exercise sole decision-making authority relating to the decisions of the NPSG Board, and the interests of other members of the NPSG Board may diverge from those of the Company. Any such divergence could have a material adverse effect on the operating and financial results of the Company.
Provisions in the CBA and the RMA with The Coca‑Cola Company could delay or prevent a change in control of the Company or a sale of the Company’s Coca‑Cola distribution or manufacturing businesses.
Provisions in the CBA and the RMA require the Company to obtain The Coca‑Cola Company’s prior approval of a potential buyer of the Company’s Coca‑Cola distribution or manufacturing businesses, which could delay or prevent a change in control of the Company or the Company’s ability to sell such businesses. The Company can obtain a list of pre-approved third-party buyers from The Coca‑Cola Company annually. In addition, the Company can seek buyer-specific approval from The Coca‑Cola Company upon receipt of a third-party offer to purchase the Company or its Coca‑Cola related businesses. If a change in control or sale of one of our businesses is delayed or prevented by the provisions in the CBA and the RMA, the market price of our common stock could be negatively affected.
The concentration of the Company’s capital stock ownership with the Harrison family limits other stockholders’ ability to influence corporate matters.
Members of the Harrison family, including the Company’s Chairman and Chief Executive Officer, J. Frank Harrison, III, beneficially own shares of Common Stock and Class B Common Stock representing approximately 86% of the total voting power of the Company’s outstanding common stock. In addition, three members of the Harrison family, including Mr. Harrison, serve on the Company’s Board of Directors.
As a result, members of the Harrison family have the ability to exert substantial influence or actual control over the Company’s management and affairs and over substantially all matters requiring action by the Company’s stockholders. This concentration of ownership may have the effect of delaying or preventing a change in control otherwise favored by the Company’s other stockholders and could depress the stock price or limit other stockholders’ ability to influence corporate matters, which could result in the Company making decisions that stockholders outside the Harrison family may not view as beneficial.
13
The Company’s financial condition can be impacted by the stability of the general economy.
Unfavorable changes in general economic conditions or in the geographic markets in which the Company does business may have the temporary effect of reducing the demand for certain of the Company’s products. For example, economic forces may cause consumers to shift away from purchasing higher-margin products and packages sold through immediate consumption and other highly profitable channels. Adverse economic conditions could also increase the likelihood of customer delinquencies and bankruptcies, which would increase the risk of uncollectibility of certain accounts. Each of these factors could adversely affect the Company’s overall business, financial condition and results of operations.
The Company’s capital structure, including its cash positions and borrowing capacity with banks or other financial institutions and financial markets, exposes it to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of the Company’s counterparties were to become insolvent or enter bankruptcy, the Company’s ability to recover losses incurred as a result of default or to retrieve assets that are deposited or held in accounts with such counterparty may be limited by the counterparty’s liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. Consequently, the Company’s access to capital may be diminished. Any such event of default or failure could negatively impact the Company’s business, financial condition and results of operations.
Changes in the Company’s top customer relationships and marketing strategies could impact sales volume and revenues.
The Company faces concentration risks related to a few customers comprising a large portion of the Company’s annual sales volume and net revenue. The Company’s business, financial condition and results of operations could be adversely affected if revenue from one or more of these significant customers is materially reduced or if the cost of complying with the customers’ demands is significant. Additionally, if receivables from one or more of these significant customers become uncollectible, the Company’s financial condition and results of operations may be adversely impacted.
The Company’s largest customers, Wal-Mart Stores, Inc. and The Kroger Company, accounted for approximately 31% of the Company’s 2019 bottle/can sales volume to retail customers and approximately 21% of the Company’s 2019 total net sales. These customers typically make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance and generally do not enter into long-term contracts. The Company faces risks related to maintaining the volume demanded on a short-term basis from these customers, which can also divert resources away from other customers. The loss of Wal‑Mart Stores, Inc. or The Kroger Company as a customer could have a material adverse effect on the business, financial condition and results of operations of the Company.
Further, the Company’s revenue is affected by promotion of the Company’s products by significant customers, such as in-store displays created by customers or the promotion of the Company’s products in customers’ periodic advertising. If the Company’s significant customers change the manner in which they market or promote the Company’s products, or if the marketing efforts by significant customers become ineffective, the Company’s sales volume and revenue could be adversely impacted.
The Company may not be able to respond successfully to changes in the marketplace.
The Company operates in the highly competitive nonalcoholic beverage industry and faces strong competition from other general and specialty beverage companies. The Company’s response to continued and increased customer and competitor consolidations and marketplace competition may result in lower than expected net pricing of the Company’s products. The Company’s ability to gain or maintain the Company’s share of sales or gross margins may be limited by the actions of the Company’s competitors, which may have advantages in setting prices due to lower raw material costs.
Competitive pressures in the markets in which the Company operates may cause channel and product mix to shift away from more profitable channels and packages. If the Company is unable to maintain or increase volume in higher-margin products and in packages sold through higher-margin channels, such as immediate consumption, pricing and gross margins could be adversely affected. Any related efforts by the Company to improve pricing and/or gross margin may result in lower than expected sales volume.
In addition, the Company’s sales of finished goods to The Coca‑Cola Company and other U.S. Coca‑Cola bottlers are governed by the RMA, pursuant to which the prices, or certain elements of the formulas used to determine the prices, for such finished goods are unilaterally established by The Coca‑Cola Company from time to time. This limits the Company’s ability to adjust pricing in response to changes in the marketplace, which could have an adverse impact on the Company’s business, financial condition and results of operations.
14
The Company’s inability to meet requirements under its beverage agreements could result in the loss of distribution and manufacturing rights.
Under the CBA and the RMA, which authorize the Company to distribute and/or manufacture products of The Coca‑Cola Company, and pursuant to the Company’s distribution agreements with other beverage companies, the Company must satisfy various requirements, such as making minimum capital expenditures or maintaining certain performance rates. Failure to satisfy these requirements could result in the loss of distribution and manufacturing rights for the respective products under one or more of these beverage agreements. The occurrence of other events defined in these agreements could also result in the termination of one or more beverage agreements.
The RMA also requires the Company to provide and sell covered beverages to other U.S. Coca‑Cola bottlers at prices established pursuant to the RMA. As the timing and quantity of such requests by other U.S. Coca‑Cola bottlers can be unpredictable, any failure by the Company to adequately plan for such demand could also constrain the Company’s supply chain network.
Changes in the Company’s level of debt, borrowing costs and credit ratings could impact access to capital and credit markets, restrict the Company’s operating flexibility and limit the Company’s ability to obtain additional financing to fund future needs.
As of December 29, 2019, the Company had $1.03 billion of debt outstanding. The Company’s level of debt requires a substantial portion of future cash flows from operations to be dedicated to the payment of principal and interest, which reduces funds available for other purposes. The Company’s debt level can negatively impact its operations by limiting the Company’s ability to, and/or increasing its cost to, access credit markets for working capital, capital expenditures and other general corporate purposes; increasing the Company’s vulnerability to economic downturns and adverse industry conditions by limiting the Company’s ability to react to changing economic and business conditions; and exposing the Company to increased risk that the Company will not be able to refinance the principal amount of debt as it becomes due or that a significant decrease in cash flows from operations could make it difficult for the Company to meet its debt service requirements and to comply with financial covenants in its debt agreements.
The Company’s acquisition related contingent consideration, revolving credit facility, term loan facility and pension and postretirement medical benefits are subject to changes in interest rates. If interest rates increase in the future, the Company’s borrowing costs could increase, which could negatively impact the Company’s financial condition and results of operations and limit the Company’s ability to spend in other areas of the business. Further, a decline in the interest rates used to discount the Company’s pension and postretirement medical liabilities could increase the cost of these benefits and the amount of the liabilities.
In July 2017, the United Kingdom’s Financial Conduct Authority announced that it will not require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. The Company has identified its revolving credit facility as its only LIBOR-indexed financial instrument which extends after 2021. The use of alternative reference rates or other reforms could cause the interest rate calculated for our revolving credit facility to be materially different than expected. The Company continues to evaluate the impact of and mitigate the risk associated with the expected discontinuation of LIBOR on the Company’s business, financial condition and results of operations.
In assessing the Company’s credit strength, credit rating agencies consider the Company’s capital structure, financial policies, consolidated balance sheet and other financial information, and may also consider financial information of other bottling and beverage companies. The Company’s credit ratings could be significantly impacted by the Company’s operating performance, changes in the methodologies used by rating agencies to assess the Company’s credit ratings, changes in The Coca‑Cola Company’s credit ratings and the rating agencies’ perception of the impact of credit market conditions on the Company’s current or future financial performance. Lower credit ratings could significantly increase the Company’s borrowing costs or adversely affect the Company’s ability to obtain additional financing at acceptable interest rates or to refinance existing debt.
Failure to attract, train and retain qualified employees while controlling labor costs, and other labor issues could have an adverse effect on the Company’s reputation, business, financial condition and results of operations or profitability.
The Company’s future growth and performance depend on its ability to attract, hire, train, develop, motivate and retain a highly skilled, diverse and properly credentialed workforce. The Company’s ability to meet its labor needs while controlling labor costs is subject to many external factors, including competition for and availability of qualified personnel in a given market, unemployment levels within those markets, prevailing wage rates, minimum wage laws, health and other insurance costs and changes in employment and labor laws or other workplace regulations. Any unplanned turnover or unsuccessful implementation of the Company’s succession plans could deplete the Company’s institutional knowledge base and erode its competitive advantage or result in increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs. Any of the foregoing could adversely affect the Company’s reputation, business, financial condition or results of operations.
15
The Company uses various insurance structures to manage costs related to workers’ compensation, auto liability, medical and other insurable risks. These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically finance, transfer and mitigate the financial impact of losses to the Company. Losses are accrued using assumptions and procedures followed in the insurance industry, then adjusted for company-specific history and expectations. Although the Company has actively sought to control increases in these costs, there can be no assurance the Company will succeed in limiting future cost increases, which could reduce the profitability of the Company’s operations.
In addition, the Company’s profitability is substantially affected by the cost of pension retirement benefits, postretirement medical benefits and current employees’ medical benefits. Macro-economic factors beyond the Company’s control, including increases in healthcare costs, declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities, could result in significant increases in these costs for the Company. Although the Company has actively sought to control increases in these costs, there can be no assurance the Company will succeed in limiting future cost increases, which could reduce the profitability of the Company’s operations.
Failure to maintain productive relationships with our employees covered by collective bargaining agreements, including failing to renegotiate collective bargaining agreements, could have an adverse effect on the Company’s business, financial condition and results of operations.
Approximately 14% of the Company’s employees are covered by collective bargaining agreements. Any inability of the Company to renegotiate subsequent agreements with labor unions on satisfactory terms and conditions could result in work interruptions or stoppages, which could have a material adverse impact on the Company’s profitability. In addition, the terms and conditions of existing or renegotiated agreements could increase costs or otherwise affect the Company’s ability to fully implement operational changes to improve overall efficiency.
Certain employees of the Company whose employment is covered under collective bargaining agreements participate in a multiemployer pension plan, the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund (the “Teamsters Plan”). Participating in the Teamsters Plan involves certain risks in addition to the risks associated with single employer plans, as contributed assets are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the Teamsters Plan, the unfunded obligations of the Teamsters Plan may be borne by the remaining participating employers. If the Company chooses to stop participating in the Teamsters Plan, the Company could be required to pay the Teamsters Plan a withdrawal liability based on the underfunded status of the Teamsters Plan.
Changes in the inputs used to calculate the Company’s acquisition related contingent consideration liability could have a material adverse impact on the Company’s financial condition and results of operations.
The Company’s acquisition related contingent consideration liability, which totaled $446.7 million as of December 29, 2019, consists of the estimated amounts due to The Coca‑Cola Company as sub-bottling payments under the CBA over the remaining useful life of the related distribution rights, which is generally 40 years. Changes in business conditions or other events could materially change both the future cash flow projections and the discount rate used in the calculation of the fair value of contingent consideration under the CBA. These changes could materially impact the fair value of the related contingent consideration and the amount of noncash expense (or income) recorded each reporting period.
Changes in tax laws, disagreements with tax authorities or additional tax liabilities could have a material adverse impact on the Company’s financial condition and results of operations.
The Company is subject to income taxes within the United States. The Company’s annual income tax rate is based upon the Company’s income, federal tax laws and various state and local tax laws within the jurisdictions in which the Company operates. Changes in federal, state or local income tax rates and/or tax laws could have a material adverse impact on the Company’s financial results.
Excise or other taxes imposed on the sale of certain of the Company’s products by the federal government and certain state and local governments, particularly any taxes incorporated into shelf prices and passed along to consumers, could cause consumers to shift away from purchasing products of the Company, which could have a material adverse impact on the Company’s business and financial results.
In addition, an assessment of additional taxes resulting from audits of the Company’s tax filings could have an adverse impact on the Company’s profitability, cash flows and financial condition.
16
Litigation or legal proceedings could expose the Company to significant liabilities and damage the Company’s reputation.
The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business, including, but not limited to, litigation claims and legal proceedings arising out of its advertising and marketing practices, product claims and labels, intellectual property and commercial disputes, and environmental and employment matters. With respect to all such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Although the Company does not believe a material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims, the Company faces risk of an adverse effect on its results of operations, financial position or cash flows, depending on the outcome of the legal proceedings.
Natural disasters, changing weather patterns and unfavorable weather could negatively impact the Company’s business, financial condition and future results of operations or profitability.
Natural disasters or unfavorable weather conditions in the geographic regions in which the Company or its suppliers operate could have an adverse impact on the Company’s revenue and profitability. For instance, unusually cold or rainy weather during the summer months may have a temporary effect on the demand for the Company’s products and contribute to lower sales, which could adversely affect the Company’s profitability for such periods. Prolonged drought conditions could lead to restrictions on water use, which could adversely affect the Company’s cost and ability to manufacture and distribute products. Hurricanes or similar storms may have a negative sourcing impact or cause shifts in product mix to lower-margin products and packages.
Climate change may have a long-term adverse impact on our business and results of operations.
There is concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere could cause significant changes in weather patterns and an increase in the frequency or duration of extreme weather and climate events. These changes could adversely impact some of the Company’s facilities, the availability and cost of key raw materials used by the Company in production or the demand for the Company’s products. Public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs, and may require the Company to make additional investments in facilities and equipment. In addition, federal, state or local governmental authorities may propose legislative and regulatory initiatives in response to concerns over climate change which could directly or indirectly adversely affect the Company’s business, require additional investments or increase the cost of raw materials, fuel, ingredients and water. As a result, the effects of climate change could have a long-term adverse impact on the Company’s business and results of operations.
None.
As of January 26, 2020, the principal properties of the Company included its corporate headquarters, subsidiary headquarters, 71 distribution centers and 12 manufacturing plants. The Company owns 53 distribution centers and 10 manufacturing plants, and leases its corporate headquarters, subsidiary headquarters, 18 distribution centers and two manufacturing plants. Following is a summary of the Company’s manufacturing plants and certain other properties:
|
Facility Type |
|
Location |
|
Square Feet |
|
|
Leased / Owned |
|
Lease Expiration |
|
||
|
Corporate Headquarters(1)(3) |
|
Charlotte, NC |
|
|
172,000 |
|
|
Leased |
|
|
2029 |
|
|
Manufacturing Plant |
|
Nashville, TN |
|
|
330,000 |
|
|
Leased |
|
|
2024 |
|
|
Distribution Center/Manufacturing Plant Combination(2)(3) |
|
Charlotte, NC |
|
|
647,000 |
|
|
Leased |
|
|
2020 |
|
|
Distribution Center |
|
Clayton, NC |
|
|
233,000 |
|
|
Leased |
|
|
2026 |
|
|
Distribution Center |
|
Erlanger, KY |
|
|
301,000 |
|
|
Leased |
|
|
2034 |
|
|
Distribution Center |
|
Hanover, MD |
|
|
276,000 |
|
|
Leased |
|
|
2034 |
|
|
Distribution Center |
|
La Vergne, TN |
|
|
220,000 |
|
|
Leased |
|
|
2026 |
|
|
Distribution Center |
|
Louisville, KY |
|
|
300,000 |
|
|
Leased |
|
|
2030 |
|
|
Distribution Center |
|
Memphis, TN |
|
|
266,000 |
|
|
Leased |
|
|
2025 |
|
|
Warehouse |
|
Charlotte, NC |
|
|
380,000 |
|
|
Leased |
|
|
2028 |
|
|
Warehouse |
|
Hanover, MD |
|
|
278,000 |
|
|
Leased |
|
|
2022 |
|
17
|
Facility Type |
|
Location |
|
Square Feet |
|
|
Leased / Owned |
|
Lease Expiration |
|
||
|
Manufacturing Plant |
|
Baltimore, MD |
|
|
158,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
Cincinnati, OH |
|
|
368,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
Memphis, TN |
|
|
271,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
Portland, IN |
|
|
119,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
Roanoke, VA |
|
|
316,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
Silver Spring, MD |
|
|
104,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
Twinsburg, OH |
|
|
287,000 |
|
|
Owned |
|
|
— |
|
|
Manufacturing Plant |
|
West Memphis, AR |
|
|
126,000 |
|
|
Owned |
|
|
— |
|
|
Distribution Center/Manufacturing Plant Combination |
|
Indianapolis, IN |
|
|
380,000 |
|
|
Owned |
|
|
— |
|
|
Distribution Center/Manufacturing Plant Combination |
|
Sandston, VA |
|
|
319,000 |
|
|
Owned |
|
|
— |
|
|
(1) |
Includes two adjacent buildings totaling approximately 172,000 square feet. |
|
(2) |
Includes a 542,000-square foot manufacturing plant and adjacent 105,000-square foot distribution center. |
|
(3) |
The leases for these facilities are with a related party. |
The Company believes all of its facilities are in good condition and are adequate for the Company’s operations as presently conducted. The Company has production capacity to meet its current operational requirements. The estimated utilization percentage of the Company’s manufacturing plants, which fluctuates with the seasonality of the business, as of December 29, 2019, is indicated below:
|
Location |
|
Utilization(1) |
|
|
Location |
|
Utilization(1) |
|
||
|
Portland, Indiana |
|
|
106 |
% |
|
Baltimore, Maryland |
|
|
78 |
% |
|
Roanoke, Virginia |
|
|
99 |
% |
|
Cincinnati, Ohio |
|
|
77 |
% |
|
Silver Spring, Maryland |
|
|
96 |
% |
|
Sandston, Virginia |
|
|
67 |
% |
|
Nashville, Tennessee |
|
|
91 |
% |
|
Twinsburg, Ohio |
|
|
62 |
% |
|
Charlotte, North Carolina |
|
|
89 |
% |
|
West Memphis, Arkansas |
|
|
51 |
% |
|
Indianapolis, Indiana |
|
|
80 |
% |
|
Memphis, Tennessee |
|
|
49 |
% |
|
(1) |
Estimated production divided by capacity, based on operations of six days per week and 20 hours per day. |
In addition to the facilities noted above, the Company utilizes a portion of the production capacity at SAC, a manufacturing cooperative located in Bishopville, South Carolina, that owns a 261,000-square foot manufacturing plant.
The Company’s products are generally transported to distribution centers for storage pending sale. There were no changes to the number of distribution centers by market area between December 29, 2019 and January 26, 2020.
As of January 26, 2020, the Company owned and operated approximately 4,400 vehicles in the sale and distribution of the Company’s beverage products, of which approximately 2,900 were route delivery trucks. In addition, the Company owned approximately 480,000 beverage dispensing and vending machines for the sale of beverage products in the Company’s territories as of January 26, 2020.
The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes that the ultimate disposition of these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.
Not applicable.
18
Information About Our Executive Officers
The following information is provided with respect to each of the executive officers of the Company.
|
Name |
|
Position and Office |
|
Age |
|
|
|
|
Chairman of the Board of Directors and Chief Executive Officer |
|
|
65 |
|
|
|
|
President and Chief Operating Officer |
|
|
51 |
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
56 |
|
|
|
|
Senior Vice President and Chief Accounting Officer |
|
|
53 |
|
|
|
Robert G. Chambless |
|
Executive Vice President, Franchise Beverage Operations |
|
|
54 |
|
|
|
Senior Vice President |
|
|
38 |
|
|
|
E. Beauregarde Fisher III |
|
Executive Vice President, General Counsel and Secretary |
|
|
51 |
|
|
|
Vice Chairman of the Board of Directors |
|
|
62 |
|
|
|
Kimberly A. Kuo |
|
Senior Vice President, Public Affairs, Communications and Communities |
|
|
49 |
|
|
James L. Matte |
|
Senior Vice President, Human Resources |
|
|
60 |
|
Mr. J. Frank Harrison, III was elected Chairman of the Board of Directors in December 1996 and Chief Executive Officer in May 1994. Mr. Harrison served as Vice Chairman of the Board from November 1987 to December 1996. He was first employed by the Company in 1977 and also served as a Division Sales Manager and as a Vice President.
Mr. David M. Katz was elected President and Chief Operating Officer in December 2018. Prior to this, he served in various positions within the Company, including Executive Vice President and Chief Financial Officer from January 2018 to December 2018, Executive Vice President, Product Supply and Culture & Stewardship from April 2017 to January 2018, Executive Vice President, Human Resources from April 2016 to April 2017 and Senior Vice President from January 2013 to March 2016. He held the position of Senior Vice President, Midwest Region for CCR from November 2010 to December 2012. Prior to the formation of CCR, he was Vice President, Sales Operations for Coca‑Cola Enterprises Inc.’s (“CCE”) East Business Unit. From 2008 to 2010, he served as Chief Procurement Officer and as President and Chief Executive Officer of Coca‑Cola Bottlers’ Sales & Services Company, LLC. He began his Coca‑Cola career in 1993 with CCE as a Logistics Consultant.
Mr. F. Scott Anthony was elected Executive Vice President and Chief Financial Officer in December 2018. Prior to that, he served as Senior Vice President, Treasurer from November 2018 to December 2018. Before joining the Company, Mr. Anthony served as Executive Vice President, Chief Financial Officer of Ventura Foods, LLC, a privately held food solutions company, from April 2011 to September 2018. Prior to that, Mr. Anthony spent 21 years with CCE in a variety of roles, including Vice President, Chief Financial Officer of CCE’s North America division, Vice President, Investor Relations & Planning, and Director, Acquisitions & Investor Relations.
Mr. William J. Billiard was elected Chief Accounting Officer in February 2006 and Senior Vice President in April 2017. In addition to these roles, he also served as, Vice President, Corporate Controller from June 2013 to November 2014, Vice President, Operations Finance from November 2010 to June 2013 and Vice President, Controller from February 2006 to November 2010. Before joining the Company, he served in various senior financial roles including Chief Financial Officer, Treasurer, Corporate Controller and Vice President of Finance for companies in the Charlotte, North Carolina and Atlanta, Georgia areas and was an accountant with Deloitte.
Mr. Robert G. Chambless was elected Executive Vice President, Franchise Beverage Operations in January 2018. Prior to this, he served in various positions within the Company, including Executive Vice President, Franchise Strategy and Operations from April 2016 to January 2018, Senior Vice President, Sales, Field Operations and Marketing from August 2010 to March 2016, Senior Vice President, Sales from June 2008 to July 2010, Vice President - Franchise Sales from 2003 to 2008, Region Sales Manager for the Company’s Southern Division from 2000 to 2003 and Sales Manager in the Company’s Columbia, South Carolina branch from 1997 to 2000. He also served the Company in several other positions prior to 1997 and was first employed by the Company in 1986.
Ms. Morgan H. Everett was elected Senior Vice President in April 2019. Prior to that, she was Vice President, a position she held from January 2016 to March 2019, and Community Relations Director, a position she held from January 2009 to December 2015. Since December 2018, she has served as Chairman of Red Classic Services, LLC and Data Ventures, Inc., two of the Company’s operating subsidiaries. She has been an employee of the Company since October 2004.
Mr. E. Beauregarde Fisher III was elected Executive Vice President, General Counsel in February 2017 and Secretary in May 2017. Before joining the Company, he was a partner with the law firm of Moore & Van Allen PLLC where he served on the firm’s management committee and chaired its business law practice group. He was associated with the firm from 1998 to 2017 and
19
concentrated his practice on mergers and acquisitions, corporate governance and general corporate matters. From 2011 to 2017, he served as the Company’s outside corporate counsel.
Mr. Umesh M. Kasbekar was elected Vice Chairman of the Board of Directors in January 2016. Previously, he served as the Secretary from August 2012 to May 2017 and as Senior Vice President, Planning and Administration from June 2005 to December 2015. Prior to that, he was the Company’s Vice President, Planning, a position he was elected to in December 1988.
Ms. Kimberly A. Kuo was elected Senior Vice President, Public Affairs, Communications and Communities in January 2016. Before joining the Company, she operated her own communications and marketing consulting firm, Sterling Strategies, LLC, from January 2014 to December 2015. Prior to that, she served as Chief Marketing Officer at Baker & Taylor, Inc., a book and entertainment distributor, from February 2009 to July 2013. Prior to her experience at Baker & Taylor, Inc., she served in various communications and government affairs roles on Capitol Hill, in political campaigns, trade associations and corporations.
Mr. James L. Matte was elected Senior Vice President, Human Resources in April 2017 after joining the Company as Vice President of Human Resources in September 2015. Before joining the Company, Mr. Matte served as a labor and employee relations consultant to several private equity groups from January 2014 to August 2015. Prior to that, he was employed by CCE in North America and in Europe, holding a variety of human resources leadership positions related to human resource strategy, talent management, employee and labor relations, organizational development and employment practices from August 2004 to December 2013. Prior to his career at CCE, he was a partner with the law firm of McGuireWoods, LLP.
20
PART II
|
Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is traded on the NASDAQ Global Select Market under the symbol COKE. There is no established public trading market for the Class B Common Stock. Shares of Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock at the option of the holder.
The Company’s Board of Directors determines the amount and frequency of dividends declared and paid by the Company in light of the earnings and financial condition of the Company at such time. No assurance can be given that dividends will be declared or paid in the future.
As of January 26, 2020, the number of stockholders of record of the Common Stock and Class B Common Stock was 1,291 and 10, respectively.
On March 5, 2019, the Compensation Committee of the Company’s Board of Directors determined that 34,700 shares of restricted Class B Common Stock, $1.00 par value, should be issued to J. Frank Harrison, III, in connection with his services in 2018 as Chairman of the Board of Directors and Chief Executive Officer of the Company, pursuant to a performance unit award agreement approved in 2008 (the “Performance Unit Award Agreement”). As permitted under the terms of the Performance Unit Award Agreement, 15,476 of such shares were settled in cash to satisfy tax withholding obligations in connection with the vesting of the performance units. The shares issued to Mr. Harrison were issued without registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) therein. The Performance Unit Award Agreement expired with this award issuance. See Note 23 to the consolidated financial statements for additional information.
Stock Performance Graph
Presented below is a line graph comparing the yearly percentage change in the cumulative total return on the Company’s Common Stock to the cumulative total return of the Standard & Poor’s 500 Index and a peer group for the period commencing December 28, 2014 and ending December 29, 2019. The peer group is comprised of Keurig Dr Pepper Inc., National Beverage Corp., The Coca‑Cola Company, Cott Corporation and PepsiCo, Inc.
The graph assumes $100 was invested in the Company’s Common Stock, the Standard & Poor’s 500 Index and each of the companies within the peer group on December 28, 2014, and that all dividends were reinvested on a quarterly basis. Returns for the companies included in the peer group have been weighted on the basis of the total market capitalization for each company.
21
|
* |
Assumes $100 invested on 12/28/2014 in stock or 12/31/2014 in index, including reinvestment of dividends. |
Index calculated on a month-end basis.
22
The table below sets forth certain selected financial data concerning the Company for the five fiscal years ended December 29, 2019. The data is derived from consolidated financial statements of the Company. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the accompanying notes to the consolidated financial statements for additional information.
|
|
|
Fiscal Year |
|
|||||||||||||||||
|
(in thousands, except per share data) |
|
2019(1) |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015(2) |
|
|||||
|
Net sales |
|
$ |
4,826,549 |
|
|
$ |
4,625,364 |
|
|
$ |
4,287,588 |
|
|
$ |
3,130,145 |
|
|
$ |
2,287,707 |
|
|
Cost of sales |
|
|
3,156,047 |
|
|
|
3,069,652 |
|
|
|
2,782,721 |
|
|
|
1,940,706 |
|
|
|
1,405,426 |
|
|
Gross profit |
|
|
1,670,502 |
|
|
|
1,555,712 |
|
|
|
1,504,867 |
|
|
|
1,189,439 |
|
|
|
882,281 |
|
|
Selling, delivery and administrative expenses |
|
|
1,489,748 |
|
|
|
1,497,810 |
|
|
|
1,403,320 |
|
|
|
1,058,240 |
|
|
|
784,137 |
|
|
Income from operations |
|
|
180,754 |
|
|
|
57,902 |
|
|
|
101,547 |
|
|
|
131,199 |
|
|
|
98,144 |
|
|
Interest expense, net |
|
|
45,990 |
|
|
|
50,506 |
|
|
|
41,869 |
|
|
|
36,325 |
|
|
|
28,915 |
|
|
Other expense, net |
|
|
100,539 |
|
|
|
30,853 |
|
|
|
9,565 |
|
|
|
1,470 |
|
|
|
3,576 |
|
|
Gain (loss) on exchange transactions |
|
|
- |
|
|
|
10,170 |
|
|
|
12,893 |
|
|
|
(692 |
) |
|
|
8,807 |
|
|
Gain on sale of business |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
22,651 |
|
|
Bargain purchase gain, net of tax of $1,265 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,011 |
|
|
Income (loss) before income taxes |
|
|
34,225 |
|
|
|
(13,287 |
) |
|
|
63,006 |
|
|
|
92,712 |
|
|
|
99,122 |
|
|
Income tax expense (benefit) |
|
|
15,665 |
|
|
|
1,869 |
|
|
|
(39,841 |
) |
|
|
36,049 |
|
|
|
34,078 |
|
|
Net income (loss) |
|
|
18,560 |
|
|
|
(15,156 |
) |
|
|
102,847 |
|
|
|
56,663 |
|
|
|
65,044 |
|
|
Less: Net income attributable to noncontrolling interest |
|
|
7,185 |
|
|
|
4,774 |
|
|
|
6,312 |
|
|
|
6,517 |
|
|
|
6,042 |
|
|
Net income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
$ |
11,375 |
|
|
$ |
(19,930 |
) |
|
$ |
96,535 |
|
|
$ |
50,146 |
|
|
$ |
59,002 |
|
|
Basic net income (loss) per share based on net income attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.21 |
|
|
$ |
(2.13 |
) |
|
$ |
10.35 |
|
|
$ |
5.39 |
|
|
$ |
6.35 |
|
|
Class B Common Stock |
|
$ |
1.21 |
|
|
$ |
(2.13 |
) |
|
$ |
10.35 |
|
|
$ |
5.39 |
|
|
$ |
6.35 |
|
|
Diluted net income (loss) per share based on net income attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.21 |
|
|
$ |
(2.13 |
) |
|
$ |
10.30 |
|
|
$ |
5.36 |
|
|
$ |
6.33 |
|
|
Class B Common Stock |
|
$ |
1.19 |
|
|
$ |
(2.13 |
) |
|
$ |
10.29 |
|
|
$ |
5.35 |
|
|
$ |
6.31 |
|
|
Cash dividends per share - Common Stock |
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
Cash dividends per share - Class B Common Stock |
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
Net cash provided by operating activities |
|
$ |
290,370 |
|
|
$ |
168,879 |
|
|
$ |
307,816 |
|
|
$ |
161,995 |
|
|
$ |
108,290 |
|
|
Net cash used in investing activities |
|
|
173,677 |
|
|
|
143,945 |
|
|
|
458,895 |
|
|
|
452,026 |
|
|
|
217,343 |
|
|
Net cash provided by (used in) financing activities |
|
|
(120,627 |
) |
|
|
(28,288 |
) |
|
|
146,131 |
|
|
|
256,383 |
|
|
|
155,456 |
|
|
Total assets |
|
|
3,126,926 |
|
|
|
3,009,928 |
|
|
|
3,072,960 |
|
|
|
2,449,484 |
|
|
|
1,846,565 |
|
|
Working capital |
|
|
208,081 |
|
|
|
195,681 |
|
|
|
155,086 |
|
|
|
135,904 |
|
|
|
108,366 |
|
|
Acquisition related contingent consideration |
|
|
446,684 |
|
|
|
382,898 |
|
|
|
381,291 |
|
|
|
253,437 |
|
|
|
136,570 |
|
|
Current portion of obligations under financing or capital leases |
|
|
9,403 |
|
|
|
8,617 |
|
|
|
8,221 |
|
|
|
7,527 |
|
|
|
7,063 |
|
|
Noncurrent portion of obligations under financing or capital leases |
|
|
17,403 |
|
|
|
26,631 |
|
|
|
35,248 |
|
|
|
41,194 |
|
|
|
48,721 |
|
|
Long-term debt |
|
|
1,029,920 |
|
|
|
1,104,403 |
|
|
|
1,088,018 |
|
|
|
907,254 |
|
|
|
619,628 |
|
|
Total equity of Coca-Cola Consolidated, Inc. |
|
|
346,952 |
|
|
|
358,187 |
|
|
|
366,702 |
|
|
|
277,131 |
|
|
|
243,056 |
|
|
Physical case volume |
|
|
343,242 |
|
|
|
337,711 |
|
|
|
323,836 |
|
|
|
243,578 |
|
|
|
179,564 |
|
|
(1) |
In 2019, the Company adopted Accounting Standards Update 2016-02, “Leases,” using the optional transition method. As of December 29, 2019, the Company had $15.0 million in current obligations under operating leases and $97.8 million in noncurrent obligations under operating leases. See Note 10 to the consolidated financial statements for additional information on the Company’s adoption of the lease standard. |
|
(2) |
All years presented are 52-week fiscal years except 2015 which was a 53-week fiscal year. The estimated net sales, gross margin and selling, delivery and administrative (“SD&A”) expenses for the additional week in 2015 of approximately $39 million, $14 million and $10 million, respectively, are included in the reported results for 2015. |
23
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes to the consolidated financial statements.
The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The fiscal years presented are the 52‑week periods ended December 29, 2019 (“2019”) and December 30, 2018 (“2018”).
The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries, including Piedmont Coca-Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary that has a significant noncontrolling interest. Piedmont distributes and markets nonalcoholic beverages in portions of North Carolina and South Carolina. The Company provides a portion of these nonalcoholic beverage products to Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. Noncontrolling interest consists of The Coca‑Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.
The Company manages its business on the basis of three operating segments. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.”
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report discusses the Company’s financial condition and results of operations as of and for 2019 and 2018. Information concerning the fiscal year ended December 31, 2017 (“2017”) and a comparison of 2018 and 2017 may be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10‑K for 2018, filed with the SEC on February 27, 2019.
Areas of Emphasis
Key priorities for the Company include commercial execution, revenue management, supply chain optimization and cash flow generation.
Commercial Execution: Our success is dependent on our ability to execute our commercial strategy within our customers’ stores. Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results. We are focused on execution at every step in our supply chain, including raw material and finished goods procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur. We are investing in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive value in our business for the long term.
Revenue Management: Our revenue management strategy focuses on the optimal pricing of our brands and packages within product categories and channels, creating effective working relationships with our customers, and disciplined fact-based decision-making. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs, the roles certain brands play in our product portfolio, and other market conditions.
Supply Chain Optimization: In October 2017, we completed the last of our acquisitions of our new distribution territories and manufacturing facilities in System Transaction. We are focused on optimizing our supply chain as we continue to integrate these new territories and facilities into our operations. During 2019, we opened a new automated distribution center in Erlanger, Kentucky which increased our operational capabilities and efficiencies and allows us to serve our customers in the Cincinnati, Ohio region at a lower cost. In addition, we are in the process of integrating our Memphis, Tennessee production center with our West Memphis, Arkansas operations. This project will greatly expand our West Memphis production capabilities and reduce our overall production costs. We will continue to look for opportunities to invest in our supply chain to optimize our costs.
Cash Flow Generation: Cash flow generation continues to be a key focus area for us. We have several initiatives in place to optimize cash flow, improve profitability and prudently manage capital expenditures, as we continue to prioritize debt repayment and focus on strengthening our balance sheet.
24
Results of Operations
The Company’s results of operations for 2019 and 2018 are summarized in the table below and discussed in the following paragraphs.
|
|
|
Fiscal Year |
|
|
|
|
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
Change |
|
|||
|
Net sales |
|
$ |
4,826,549 |
|
|
$ |
4,625,364 |
|
|
$ |
201,185 |
|
|
Cost of sales |
|
|
3,156,047 |
|
|
|
3,069,652 |
|
|
|
86,395 |
|
|
Gross profit |
|
|
1,670,502 |
|
|
|
1,555,712 |
|
|
|
114,790 |
|
|
Selling, delivery and administrative expenses |
|
|
1,489,748 |
|
|
|
1,497,810 |
|
|
|
(8,062 |
) |
|
Income from operations |
|
|
180,754 |
|
|
|
57,902 |
|
|
|
122,852 |
|
|
Interest expense, net |
|
|
45,990 |
|
|
|
50,506 |
|
|
|
(4,516 |
) |
|
Other expense, net |
|
|
100,539 |
|
|
|
30,853 |
|
|
|
69,686 |
|
|
Gain on exchange transactions |
|
|
- |
|
|
|
10,170 |
|
|
|
(10,170 |
) |
|
Income (loss) before income taxes |
|
|
34,225 |
|
|
|
(13,287 |
) |
|
|
47,512 |
|
|
Income tax expense |
|
|
15,665 |
|
|
|
1,869 |
|
|
|
13,796 |
|
|
Net income (loss) |
|
|
18,560 |
|
|
|
(15,156 |
) |
|
|
33,716 |
|
|
Less: Net income attributable to noncontrolling interest |
|
|
7,185 |
|
|
|
4,774 |
|
|
|
2,411 |
|
|
Net income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
$ |
11,375 |
|
|
$ |
(19,930 |
) |
|
$ |
31,305 |
|
|
Other comprehensive income (loss), net of tax |
|
|
(18,017 |
) |
|
|
16,937 |
|
|
|
(34,954 |
) |
|
Comprehensive loss attributable to Coca-Cola Consolidated, Inc. |
|
$ |
(6,642 |
) |
|
$ |
(2,993 |
) |
|
$ |
(3,649 |
) |
Items Impacting Operations and Financial Condition
2019
|
|
• |
$92.8 million recorded in other expense, net as a result of an increase in the fair value of the Company’s contingent consideration liability; |
|
|
• |
$10.6 million adjustment related to the impairment and accelerated depreciation of property, plant and equipment within the Nonalcoholic Beverages segment as the Company continues to optimize efficiency opportunities across its business; |
|
|
• |
$10.1 million pre-tax favorable mark-to-market adjustments related to the Company’s commodity hedging program; |
|
|
• |
$7.3 million of additional expense to reflect the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets; and |
|
|
• |
$6.9 million of expenses related to the System Transformation. |
2018
|
|
• |
$43.3 million of expenses related to the System Transformation; |
|
|
• |
$28.8 million recorded in other expense, net as a result of an increase in the fair value of the Company’s contingent consideration liability; |
|
|
• |
$14.7 million pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program; |
|
|
• |
$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments for the System Transformation transactions completed in 2017; and |
|
|
• |
$8.6 million recorded in SD&A expenses related to severance and outplacement expenses incurred to optimize labor expense. |
25
Net Sales
Net sales increased $201.2 million, or 4.3%, to $4.83 billion in 2019, as compared to $4.63 billion in 2018. The increase in net sales was primarily attributable to the following (in millions):
|
2019 |
|
|
Attributable to: |
|
|
$ |
155.9 |
|
|
Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences |
|
|
72.1 |
|
|
Increase in net sales related to increased sales volume |
|
|
(45.7 |
) |
|
Decrease in sales volume to other Coca-Cola bottlers |
|
|
20.0 |
|
|
Increase in volume of external freight revenue to external customers (other than nonalcoholic beverages) |
|
|
(1.1 |
) |
|
Other |
|
$ |
201.2 |
|
|
Total increase in net sales |
Net sales by product category were as follows:
|
|
|
Fiscal Year |
|
|
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
% Change |
||
|
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages |
|
$ |
2,582,478 |
|
|
$ |
2,468,908 |
|
|
4.6% |
|
Still beverages |
|
|
1,558,944 |
|
|
|
1,441,783 |
|
|
8.1% |
|
Total bottle/can sales |
|
|
4,141,422 |
|
|
|
3,910,691 |
|
|
5.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
|
342,062 |
|
|
|
387,716 |
|
|
(11.8)% |
|
Post-mix and other |
|
|
343,065 |
|
|
|
326,957 |
|
|
4.9% |
|
Total other sales |
|
|
685,127 |
|
|
|
714,673 |
|
|
(4.1)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
4,826,549 |
|
|
$ |
4,625,364 |
|
|
4.3% |
Product category sales volume of physical cases as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:
|
|
|
Bottle/Can Sales Volume |
|
|
Bottle/Can Sales |
|
||||||
|
Product Category |
|
2019 |
|
|
2018 |
|
|
Volume Increase |
|
|||
|
Sparkling beverages |
|
|
70.7 |
% |
|
|
71.6 |
% |
|
|
0.4 |
% |
|
Still beverages |
|
|
29.3 |
% |
|
|
28.4 |
% |
|
|
4.9 |
% |
|
Total bottle/can sales volume |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
1.6 |
% |
As the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization. Any differences are not material.
26
The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales that such volume represents:
|
|
|
Fiscal Year |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Approximate percent of the Company’s total bottle/can sales volume |
|
|
|
|
|
|
|
|
|
Wal-Mart Stores, Inc. |
|
|
19 |
% |
|
|
19 |
% |
|
The Kroger Company |
|
|
12 |
% |
|
|
11 |
% |
|
Total approximate percent of the Company’s total bottle/can sales volume |
|
|
31 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
Approximate percent of the Company’s total net sales |
|
|
|
|
|
|
|
|
|
Wal-Mart Stores, Inc. |
|
|
13 |
% |
|
|
14 |
% |
|
The Kroger Company |
|
|
8 |
% |
|
|
8 |
% |
|
Total approximate percent of the Company’s total net sales |
|
|
21 |
% |
|
|
22 |
% |
Cost of Sales
Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished goods from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies. Raw material costs represent approximately 20% of total cost of sales on an annual basis.
Cost of sales increased $86.4 million, or 2.8%, to $3.16 billion in 2019, as compared to $3.07 billion in 2018. The increase in cost of sales was primarily attributable to the following (in millions):
|
2019 |
|
|
Attributable to: |
|
|
$ |
85.1 |
|
|
Increase in cost of sales primarily related to the change in product mix to meet consumer preferences and an increase in concentrate costs |
|
|
(49.6 |
) |
|
Decrease in sales volume to other Coca-Cola bottlers |
|
|
43.1 |
|
|
Increase in cost of sales related to increased sales volume |
|
|
22.7 |
|
|
Increase in costs related to increased volume of external freight revenue to external customers (other than nonalcoholic beverages) |
|
|
(14.9 |
) |
|
Other |
|
$ |
86.4 |
|
|
Total increase in cost of sales |
The Company relies extensively on advertising and sales promotion in the marketing of its products. The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to promote sales in the Company’s territories. Certain of the marketing expenditures by The Coca‑Cola Company and other beverage companies are made pursuant to annual arrangements. The Company also benefits from national advertising programs conducted by The Coca‑Cola Company and other beverage companies. Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $131.5 million in 2019, as compared to $128.4 million in 2018.
The Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to their distribution network in cost of sales. The Company includes a portion of these costs in SD&A expenses, as described below.
SD&A Expenses
SD&A expenses include the following: sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs.
27
SD&A expenses decreased $8.1 million, or 0.5%, to $1.49 billion in 2019, as compared to $1.50 billion in 2018. SD&A expenses as a percentage of sales decreased to 30.9% in 2019 from 32.4% in 2018. The decrease in SD&A expenses was primarily attributable to the following (in millions):
|
2019 |
|
|
Attributable to: |
|
|
$ |
(36.4 |
) |
|
Decrease in System Transformation expenses |
|
|
22.0 |
|
|
Increase in employee benefit costs including employee salaries primarily as a result of an increase in bonuses and incentives primarily related to improved financial results, partially offset by workforce optimization completed in 2018 |
|
|
6.3 |
|
|
Other |
|
$ |
(8.1 |
) |
|
Total decrease in SD&A expenses |
The Company has three primary delivery systems: (i) bulk delivery for large supermarkets, mass merchandisers and club stores, (ii) advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premise accounts and (iii) full-service delivery for its full-service vending customers. Shipping and handling costs related to the movement of finished goods from manufacturing locations to distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, totaled $623.4 million in 2019 and $610.7 million in 2018.
Interest Expense, Net
Interest expense, net decreased $4.5 million, or 8.9%, to $46.0 million in 2019, as compared to $50.5 million in 2018. The decrease was primarily a result of lower average debt balances and lower average interest rates.
Other Expense, Net
A summary of other expense, net is as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Increase in the fair value of the acquisition related contingent consideration liability |
|
$ |
92,788 |
|
|
$ |
28,767 |
|
|
Non-service cost component of net periodic benefit cost |
|
|
7,907 |
|
|
|
2,525 |
|
|
Other |
|
|
(156 |
) |
|
|
(439 |
) |
|
Total other expense, net |
|
$ |
100,539 |
|
|
$ |
30,853 |
|
Each reporting period, the Company adjusts its contingent consideration liability related to the distribution territories subject to sub-bottling fees to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the CBA, which extend through the life of the applicable distribution assets, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and future cash flow projections. The life of these distribution asset is generally 40 years. The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis.
The increase in the fair value of the acquisition related contingent consideration liability during 2019 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees and a decrease in the discount rate used to calculate fair value. The increase in the fair value of the acquisition related contingent consideration liability during 2018 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees.
Income Tax Expense (Benefit)
The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was 45.8% in 2019 and (14.1)% in 2018. The change in the effective income tax rate was primarily driven by improved financial results. The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was 57.9% in 2019 and (10.3)% in 2018.
Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest of $7.2 million in 2019 and $4.8 million in 2018 related to the portion of Piedmont owned by The Coca‑Cola Company.
28
Other Comprehensive Income (Loss), Net of Tax
The Company had other comprehensive loss, net of tax of $18.0 million in 2019 and other comprehensive income, net of tax of $16.9 million in 2018. The decrease was primarily a result of actuarial losses on the Company’s pension and postretirement plans.
Segment Operating Results
The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM. The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.”
The Company’s segment results are as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Net sales: |
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
|
$ |
4,694,428 |
|
|
$ |
4,512,318 |
|
|
All Other |
|
|
345,005 |
|
|
|
358,625 |
|
|
Eliminations(1) |
|
|
(212,884 |
) |
|
|
(245,579 |
) |
|
Consolidated net sales |
|
$ |
4,826,549 |
|
|
$ |
4,625,364 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
|
$ |
174,133 |
|
|
$ |
45,519 |
|
|
All Other |
|
|
6,621 |
|
|
|
12,383 |
|
|
Consolidated income from operations |
|
$ |
180,754 |
|
|
$ |
57,902 |
|
|
(1) |
The entire net sales elimination for each period presented represents net sales from the All Other segment to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction. |
Adjusted Non-GAAP Results
The Company reports its financial results in accordance with GAAP. However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance.
29
Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting. The following tables reconcile reported results (GAAP) to adjusted results (non-GAAP):
|
|
|
Fiscal Year 2019 |
|
|||||||||||||||||||||
|
(in thousands, except per share data) |
|
Gross profit |
|
|
SD&A expenses |
|
|
Income from operations |
|
|
Income before income taxes |
|
|
Net income |
|
|
Basic net income per share |
|
||||||
|
Reported results (GAAP) |
|
$ |
1,670,502 |
|
|
$ |
1,489,748 |
|
|
$ |
180,754 |
|
|
$ |
34,225 |
|
|
$ |
11,375 |
|
|
$ |
1.21 |
|
|
System Transformation expenses(1) |
|
|
- |
|
|
|
(6,915 |
) |
|
|
6,915 |
|
|
|
6,915 |
|
|
|
5,200 |
|
|
|
0.56 |
|
|
Fair value adjustment of acquisition related contingent consideration(2) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
92,788 |
|
|
|
69,591 |
|
|
|
7.43 |
|
|
Fair value adjustments for commodity hedges(3) |
|
|
(6,602 |
) |
|
|
3,536 |
|
|
|
(10,138 |
) |
|
|
(10,138 |
) |
|
|
(7,604 |
) |
|
|
(0.81 |
) |
|
Capitalization threshold change for certain assets(4) |
|
|
- |
|
|
|
(7,305 |
) |
|
|
7,305 |
|
|
|
7,305 |
|
|
|
5,479 |
|
|
|
0.58 |
|
|
Supply chain and asset optimization(5) |
|
|
5,625 |
|
|
|
(4,952 |
) |
|
|
10,577 |
|
|
|
10,577 |
|
|
|
7,933 |
|
|
|
0.85 |
|
|
Total reconciling items |
|
|
(977 |
) |
|
|
(15,636 |
) |
|
|
14,659 |
|
|
|
107,447 |
|
|
|
80,599 |
|
|
|
8.61 |
|
|
Adjusted results (non-GAAP) |
|
$ |
1,669,525 |
|
|
$ |
1,474,112 |
|
|
$ |
195,413 |
|
|
$ |
141,672 |
|
|
$ |
91,974 |
|
|
$ |
9.82 |
|
|
|
|
Fiscal Year 2018 |
|
|||||||||||||||||||||
|
(in thousands, except per share data) |
|
Gross profit |
|
|
SD&A expenses |
|
|
Income from operations |
|
|
Income (loss) before income taxes |
|
|
Net income (loss) |
|
|
Basic net income (loss) per share |
|
||||||
|
Reported results (GAAP) |
|
$ |
1,555,712 |
|
|
$ |
1,497,810 |
|
|
$ |
57,902 |
|
|
$ |
(13,287 |
) |
|
$ |
(19,930 |
) |
|
$ |
(2.13 |
) |
|
System Transformation expenses(1) |
|
|
1,174 |
|
|
|
(42,162 |
) |
|
|
43,336 |
|
|
|
43,336 |
|
|
|
33,022 |
|
|
|
3.53 |
|
|
Gain on exchange transactions(6) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,170 |
) |
|
|
(7,648 |
) |
|
|
(0.82 |
) |
|
Workforce optimization expenses(7) |
|
|
- |
|
|
|
(8,555 |
) |
|
|
8,555 |
|
|
|
8,555 |
|
|
|
6,519 |
|
|
|
0.70 |
|
|
Fair value adjustment of acquisition related contingent consideration(2) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,767 |
|
|
|
21,920 |
|
|
|
2.34 |
|
|
Fair value adjustments for commodity hedges(3) |
|
|
10,376 |
|
|
|
(4,349 |
) |
|
|
14,725 |
|
|
|
14,725 |
|
|
|
11,220 |
|
|
|
1.20 |
|
|
Total reconciling items |
|
|
11,550 |
|
|
|
(55,066 |
) |
|
|
66,616 |
|
|
|
85,213 |
|
|
|
65,033 |
|
|
|
6.95 |
|
|
Adjusted results (non-GAAP) |
|
$ |
1,567,262 |
|
|
$ |
1,442,744 |
|
|
$ |
124,518 |
|
|
$ |
71,926 |
|
|
$ |
45,103 |
|
|
$ |
4.82 |
|
Following is an explanation of non-GAAP adjustments:
|
(1) |
Adjustment reflects expenses related to the System Transformation, which primarily includes information technology system conversions and professional fees and expenses related to due diligence. |
|
(2) |
This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and future cash flow projections of distribution territories acquired in the System Transformation. |
|
(3) |
The Company enters into derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity risk. The Company accounts for commodity hedges on a mark-to-market basis. |
|
(4) |
Adjustment reflects additional expense for the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the consolidated financial statements. |
|
(5) |
Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize efficiency opportunities across its business. |
|
(6) |
Adjustment reflects gain on exchange transactions as a result of final post-closing adjustments made during 2018 for the System Transformation transactions that closed during 2017. |
|
(7) |
Adjustment reflects severance and outplacement expenses relating to the Company’s optimization of its labor expense in the Nonalcoholic Beverages segment. |
30
Financial Condition
Total assets increased $117.0 million to $3.13 billion on December 29, 2019, as compared to $3.01 billion on December 30, 2018. Net working capital, defined as current assets less current liabilities, was $208.1 million on December 29, 2019, which was an increase of $12.4 million from December 30, 2018.
Significant changes in net working capital on December 29, 2019 from December 30, 2018 were as follows:
|
|
• |
An increase in accounts receivable from The Coca‑Cola Company of $17.5 million primarily as a result of the timing of cash receipts. |
|
|
• |
An increase in accounts receivable, other of $12.6 million primarily as a result of increased balances due from manufacturing cooperatives stemming from favorable commodity price variances. |
|
|
• |
An increase in inventories of $15.9 million primarily as a result of inventory builds to support expanded product selections offered by the Company. |
|
|
• |
The addition of the current portion of obligations under operating leases of $15.0 million as a result of the Company recording balances for operating leases on its consolidated balance sheets. |
|
|
• |
An increase in accounts payable, trade of $35.4 million primarily as a result of the timing of payments. |
|
|
• |
A decrease in other accrued liabilities of $41.4 million primarily as a result of the timing of payments. |
|
|
• |
An increase in accrued compensation of $15.5 million primarily as a result of increased incentive compensation accruals resulting from the Company’s financial performance. |
Liquidity and Capital Resources
Capital Resources
The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. The Company has obtained its long-term debt from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of these consolidated financial statements. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.
The Company’s total debt as of December 29, 2019 and December 30, 2018 was as follows:
|
(in thousands) |
|
Maturity Date |
|
|
|
|
||||
|
Senior notes and unamortized discount on senior notes(1)(2) |
|
4/15/2019 |
|
$ |
- |
|
|
$ |
109,922 |
|
|
Term loan facility(1) |
|
6/7/2021 |
|
|
262,500 |
|
|
|
292,500 |
|
|
Senior notes |
|
2/27/2023 |
|
|
125,000 |
|
|
|
125,000 |
|
|
Revolving credit facility |
|
6/8/2023 |
|
|
45,000 |
|
|
|
80,000 |
|
|
Senior notes and unamortized discount on senior notes(2) |
|
11/25/2025 |
|
|
349,948 |
|
|
|
349,939 |
|
|
Senior notes |
|
10/10/2026 |
|
|
100,000 |
|
|
|
- |
|
|
Senior notes |
|
3/21/2030 |
|
|
150,000 |
|
|
|
150,000 |
|
|
Debt issuance costs |
|
|
|
|
(2,528 |
) |
|
|
(2,958 |
) |
|
Long-term debt |
|
|
|
$ |
1,029,920 |
|
|
$ |
1,104,403 |
|
|
(1) |
The senior notes due in 2019 were refinanced using proceeds from the issuance of the senior notes due in 2026 (as discussed below). The Company intends to refinance principal payments due in the next 12 months under the term loan facility and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next 12 months were classified as noncurrent. |
|
(2) |
The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par. |
The Company’s term loan facility matures on June 7, 2021. The original aggregate principal amount borrowed by the Company under the facility was $300 million and repayment of principal amounts outstanding began in 2018. The Company may request additional term loans under the term loan facility, provided the Company’s aggregate borrowings under the facility do not exceed $500 million.
In July 2019, the Company entered into a $100 million fixed rate swap maturing June 7, 2021, to hedge a portion of the interest rate risk on the Company’s term loan facility. This interest rate swap is designated as a cash flow hedging instrument and is not expected
31
to be material to the consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other loss on the consolidated balance sheets and included in the consolidated statements of comprehensive income.
As discussed below under “Cash Flows From Financing Activities,” in April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.
The Company’s revolving credit facility matures on June 8, 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company. As of December 29, 2019, the Company had outstanding borrowings of $45.0 million under the revolving credit facility, and therefore had $455.0 million borrowing capacity available.
The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts. The Company’s nonpublic debt facilities include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreements. The Company was in compliance with these covenants as of December 29, 2019. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources.
All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt.
The Company’s credit ratings are reviewed periodically by certain nationally recognized rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the Company’s financial position or results of operations. Subsequent to year-end, on January 17, 2020, Standard & Poor’s reaffirmed the Company’s BBB rating and revised the Company’s rating outlook to stable from negative. Moody’s rating outlook for the Company is stable. As of December 29, 2019, the Company’s credit ratings were as follows:
|
|
|
Long-Term Debt |
|
Standard & Poor’s |
|
BBB |
|
Moody’s |
|
Baa2 |
The Company is subject to interest rate risk on its variable rate debt, including the revolving credit facility and the term loan facility. Assuming no changes in the Company’s capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of December 29, 2019, interest expense for the next 12 months would increase by approximately $2.1 million. See Item 7A for additional information.
The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers from Level 1 or Level 2. Fair value adjustments were noncash, and therefore did not impact the Company’s liquidity or capital resources. Following is a summary of the Level 3 activity:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Beginning balance - Level 3 liability |
|
$ |
382,898 |
|
|
$ |
381,291 |
|
|
Measurement period adjustments(1) |
|
|
- |
|
|
|
813 |
|
|
Payment of acquisition related contingent consideration |
|
|
(27,182 |
) |
|
|
(24,683 |
) |
|
Reclassification to current payables |
|
|
(1,820 |
) |
|
|
(3,290 |
) |
|
Increase in fair value |
|
|
92,788 |
|
|
|
28,767 |
|
|
Ending balance - Level 3 liability |
|
$ |
446,684 |
|
|
$ |
382,898 |
|
|
(1) |
Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018. |
32
Cash Sources and Uses
A summary of cash-based activity is as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Cash Sources: |
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
$ |
515,339 |
|
|
$ |
356,000 |
|
|
Net cash provided by operating activities(1) |
|
|
290,370 |
|
|
|
168,879 |
|
|
Proceeds from issuance of senior notes |
|
|
100,000 |
|
|
|
150,000 |
|
|
Proceeds from the sale of property, plant and equipment |
|
|
4,064 |
|
|
|
5,259 |
|
|
Proceeds from cold drink equipment |
|
|
- |
|
|
|
3,789 |
|
|
Acquisition of distribution territories and regional manufacturing plants, net of cash acquired and purchase price settlements |
|
|
- |
|
|
|
456 |
|
|
Total cash sources |
|
$ |
909,773 |
|
|
$ |
684,383 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Uses: |
|
|
|
|
|
|
|
|
|
Payments on revolving credit facility |
|
$ |
550,339 |
|
|
$ |
483,000 |
|
|
Additions to property, plant and equipment (exclusive of acquisitions) |
|
|
171,374 |
|
|
|
138,235 |
|
|
Payments on term loan facility and senior notes |
|
|
140,000 |
|
|
|
7,500 |
|
|
Payments of acquisition related contingent consideration |
|
|
27,182 |
|
|
|
24,683 |
|
|
Net cash paid for exchange transactions |
|
|
- |
|
|
|
13,116 |
|
|
Cash dividends paid |
|
|
9,369 |
|
|
|
9,353 |
|
|
Payments on financing or capital lease obligations |
|
|
8,656 |
|
|
|
8,221 |
|
|
Other distribution agreements |
|
|
4,654 |
|
|
|
- |
|
|
Investment in CONA Services LLC |
|
|
1,713 |
|
|
|
2,098 |
|
|
Debt issuance fees |
|
|
420 |
|
|
|
1,531 |
|
|
Total cash uses |
|
$ |
913,707 |
|
|
$ |
687,737 |
|
|
Decrease in cash |
|
$ |
(3,934 |
) |
|
$ |
(3,354 |
) |
|
(1) |
Net cash provided by operating activities in 2019 included net income tax payments of $6.3 million and pension plan contributions of $4.9 million. Net cash provided by operating activities in 2018 included net income tax refunds of $37.0 million, pension plan contributions of $20.0 million and proceeds from the Legacy Facilities Credit of $1.3 million. |
Based on current projections, which include a number of assumptions such as the Company’s pre-tax earnings, the Company anticipates its cash payments for income taxes will be between $18 million and $28 million in fiscal year 2020 (“2020”).
Cash Flows From Operating Activities
During 2019, cash provided by operating activities was $290.4 million, which was an increase of $121.5 million, as compared to 2018. The increase was primarily a result of improved financial results and continued focus on working capital needs.
Cash Flows From Investing Activities
During 2019, cash used in investing activities was $173.7 million, which was an increase of $29.8 million, as compared to 2018. The increase was driven primarily by increased additions to property, plant and equipment. Additions to property, plant and equipment during 2019 were $171.4 million. As of December 29, 2019, $19.5 million of additions to property, plant and equipment were accrued in accounts payable, trade. Additions to property, plant and equipment during 2018 were $138.2 million. As of December 30, 2018, $13.7 million of additions to property, plant and equipment were accrued in accounts payable, trade.
The Company anticipates additions to property, plant and equipment in 2020 to be in the range of $180 million to $210 million.
Cash Flows From Financing Activities
During 2019, cash used in financing activities was $120.6 million, which was an increase of $92.3 million, as compared to 2018. The increase was primarily driven by net repayments of debt in 2019, stemming from improved financial results.
33
The Company had cash payments for acquisition related contingent consideration of $27.2 million during 2019 and $24.7 million during 2018. The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $27 million to $51 million.
In April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.
In 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due in 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto. These notes bear interest at 3.96%, payable quarterly in arrears, and will mature on March 21, 2030, unless earlier redeemed by the Company. The Company used the proceeds for general corporate purposes.
Off-Balance Sheet Arrangements
The Company is a member of, and has equity ownership in, SAC, a manufacturing cooperative comprised of Coca‑Cola bottlers. As of December 29, 2019, the Company guaranteed $14.7 million of SAC’s debt. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee. See Note 21 to the consolidated financial statements for additional information.
Aggregate Contractual Obligations
The following table summarizes the Company’s contractual obligations and commercial commitments as of December 29, 2019:
|
|
|
Contractual Obligation Payments Due During |
|
|||||||||||||||||||||||||
|
(in thousands) |
|
Total |
|
|
Fiscal 2020 |
|
|
Fiscal 2021 |
|
|
Fiscal 2022 |
|
|
Fiscal 2023 |
|
|
Fiscal 2024 |
|
|
Thereafter |
|
|||||||
|
Total debt, net of interest |
|
$ |
1,032,500 |
|
|
$ |
45,000 |
|
|
$ |
217,500 |
|
|
$ |
- |
|
|
$ |
170,000 |
|
|
$ |
- |
|
|
$ |
600,000 |
|
|
Estimated interest on debt obligations(1) |
|
|
193,173 |
|
|
|
35,601 |
|
|
|
31,328 |
|
|
|
28,468 |
|
|
|
24,353 |
|
|
|
23,170 |
|
|
|
50,253 |
|
|
SAC purchase obligation(2) |
|
|
449,159 |
|
|
|
99,813 |
|
|
|
99,813 |
|
|
|
99,813 |
|
|
|
99,813 |
|
|
|
49,907 |
|
|
|
- |
|
|
Acquisition related contingent consideration |
|
|
446,684 |
|
|
|
41,087 |
|
|
|
28,855 |
|
|
|
26,946 |
|
|
|
27,468 |
|
|
|
27,998 |
|
|
|
294,330 |
|
|
Long-term marketing contractual arrangements(3) |
|
|
195,409 |
|
|
|
39,098 |
|
|
|
33,518 |
|
|
|
28,687 |
|
|
|
19,915 |
|
|
|
15,716 |
|
|
|
58,475 |
|
|
Executive benefit plans |
|
|
166,208 |
|
|
|
26,705 |
|
|
|
20,897 |
|
|
|
14,204 |
|
|
|
10,217 |
|
|
|
9,610 |
|
|
|
84,575 |
|
|
Operating lease obligations |
|
|
140,316 |
|
|
|
19,236 |
|
|
|
16,815 |
|
|
|
14,016 |
|
|
|
11,704 |
|
|
|
10,989 |
|
|
|
67,556 |
|
|
Postretirement obligations(4) |
|
|
62,056 |
|
|
|
2,831 |
|
|
|
3,003 |
|
|
|
3,122 |
|
|
|
3,169 |
|
|
|
3,439 |
|
|
|
46,492 |
|
|
Financing lease obligations |
|
|
30,484 |
|
|
|
10,611 |
|
|
|
6,215 |
|
|
|
2,694 |
|
|
|
2,750 |
|
|
|
2,808 |
|
|
|
5,406 |
|
|
Obligation for exiting multiemployer pension plan |
|
|
6,390 |
|
|
|
974 |
|
|
|
974 |
|
|
|
974 |
|
|
|
974 |
|
|
|
974 |
|
|
|
1,520 |
|
|
Purchase orders(5) |
|
|
68,636 |
|
|
|
68,636 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total contractual obligations |
|
$ |
2,791,015 |
|
|
$ |
389,592 |
|
|
$ |
458,918 |
|
|
$ |
218,924 |
|
|
$ |
370,363 |
|
|
$ |
144,611 |
|
|
$ |
1,208,607 |
|
|
(1) |
Includes interest payments based on contractual terms. |
|
(2) |
Represents an estimate of the Company’s obligation to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. |
|
(3) |
Includes long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. |
|
(4) |
Includes the liability for postretirement benefit obligations only. The unfunded portion of the Company’s pension plan is excluded as the timing and/or amount of any cash payment is uncertain. |
|
(5) |
Purchase orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been received or the services performed. |
The Company had uncertain tax positions, including accrued interest, of $2.5 million on December 29, 2019, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the
34
next 12 months, the Company does not expect such change would have a significant impact on the consolidated financial statements. See Note 17 to the consolidated financial statements for additional information.
The Company is a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. This obligation is not included in the Company’s table of contractual obligations and commercial commitments as there are no minimum purchase requirements. See Note 21 to the consolidated financial statements for additional information related to Southeastern.
The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $35.6 million on December 29, 2019. See Note 21 to the consolidated financial statements for additional information related to commercial commitments, guarantees, legal and tax matters.
The Company contributed $4.9 million to the two Company-sponsored pension plans during 2019. Contributions to the two Company-sponsored pension plans are expected to be in the range of $7 million to $12 million in 2020.
Postretirement medical care payments are expected to be approximately $2.8 million in 2020. See Note 18 to the consolidated financial statements for additional information related to pension and postretirement obligations.
Hedging Activities
The Company uses derivative financial instruments to manage its exposure to movements in certain commodity prices. Fees paid by the Company for derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income reflected as an adjustment to cost of sales or SD&A expenses.
The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. The net impact of the commodity hedges on the consolidated statements of operations was as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Increase in cost of sales |
|
$ |
8,318 |
|
|
$ |
10,788 |
|
|
Increase (decrease) in SD&A expenses |
|
|
(1,922 |
) |
|
|
3,530 |
|
|
Net impact |
|
$ |
6,396 |
|
|
$ |
14,318 |
|
Discussion of Critical Accounting Policies and Estimates and Recent Accounting Pronouncements
Critical Accounting Policies and Estimates
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses the Company’s most critical accounting policies, which are those most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters.
Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.
Revenue Recognition
The Company’s products are sold and distributed in the United States through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. The Company typically collects payment from customers within 30 days from the date of sale.
The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The
35
Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Substantially all of the Company’s revenue is recognized at a point in time and is included in the Nonalcoholic Beverages segment.
Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month. Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day.
The Company participates in various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels. The cost of these various sales incentives is not considered a separate performance obligation and is included as a deduction to net sales.
Allowance payments made to customers can be conditional on the achievement of volume targets and/or marketing commitments. Payments made in advance are recorded as prepayments and amortized in the consolidated statements of operations over the relevant period for which the customer commitment is made. In the event there is no separate identifiable benefit or the fair value of such benefit cannot be established, the amortization of the prepayment is included as a reduction to net sales.
The Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectibility of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.
The nature of the Company’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the expected value method, which estimates the net price to the customer based on the customer’s expected annual sales volume projections.
The Company experiences customer returns primarily as a result of damaged or out-of-date product. The Company’s reserve for customer returns is included in the allowance for doubtful accounts in the consolidated balance sheets. Returned product is recognized as a reduction of net sales. See Note 4 to the consolidated financial statements for additional information.
Valuation of Long-Lived Assets, Goodwill and Other Intangibles
Management performs recoverability and impairment tests of long-lived assets, goodwill and other intangibles in accordance with GAAP, during which management makes numerous assumptions which involve a significant amount of judgment. When performing impairment tests, management estimates the fair values of the assets using its best assumptions, which management believes would be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently if events or circumstances indicate that an asset may be impaired.
The Company evaluates the recoverability of the carrying amount of its property, plant and equipment and other intangibles when events or circumstances indicate the carrying amount of an asset or asset group may not be recoverable. These evaluations are performed at a level where independent cash flows may be attributed to either an asset or an asset group. If the Company determines the carrying amount of an asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets. During 2019 and 2018, the Company performed periodic reviews of property, plant and equipment and other intangibles and determined no material impairment existed.
All business combinations are accounted for using the acquisition method. All of the Company’s goodwill resides within one reporting unit within the Nonalcoholic Beverages reportable segment, and, therefore, the Company has determined it has one reporting unit for the purpose of assessing goodwill for potential impairment. The Company performs its annual goodwill impairment test as of the first day of the fourth quarter, or more frequently if facts and circumstances indicate such assets may be impaired, including significant declines in actual or future projected cash flows and significant deterioration of market conditions.
36
The Company uses its overall market capitalization as part of its estimate of fair value of the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value. The Company’s goodwill impairment assessment includes a qualitative assessment to determine whether it is more likely than not that the fair value of the goodwill is below its carrying value, each year, and more often if there are significant changes in business conditions that could result in impairment. When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting unit considering three different approaches: 1) market value, using the Company’s stock price plus outstanding debt; 2) discounted cash flow analysis; and 3) multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.
The estimated fair value of the reporting unit is compared to its carrying amount, including goodwill. If the estimated fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount, including goodwill, exceeds its estimated fair value, any excess of the carrying value of goodwill of the reporting unit over its fair value is recorded as an impairment. The Company performed its annual impairment test of goodwill as of the first day of the fourth quarter during both 2019 and 2018 and determined there was no impairment of the carrying value of these assets. The Company has determined there has not been an interim impairment trigger since the first day of the fourth quarter of 2019 annual test date. See Note 11 to the consolidated financial statements for additional information.
Acquisition Related Contingent Consideration Liability
The acquisition related contingent consideration liability consists of the estimated amounts due to The Coca‑Cola Company under the CBA over the remaining useful life of the related distribution rights. Under the CBA, the Company makes quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell certain beverages and beverage products in the distribution territories acquired in the System Transformation, but excluding territories the Company acquired in an exchange transaction. This acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs.
Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction, to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC. These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period. See Note 16 to the consolidated financial statements for additional information.
Income Tax Estimates
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating losses and tax credit carryforwards, as well as differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 17 to the consolidated financial statements for additional information.
Pension and Postretirement Benefit Obligations
There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarial determined amounts and are limited to the amounts currently deductible for income tax purposes. The Company also sponsors a postretirement healthcare plan for employees meeting specified criteria.
Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, employee turnover and age at retirement, as determined by the Company, within certain guidelines. In addition, the Company uses subjective factors such as mortality rates to estimate the projected benefit obligation. The actuarial assumptions used by the Company may differ materially
37
from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of net periodic pension cost recorded by the Company in future periods. See Note 18 to the consolidated financial statements for additional information.
The discount rate used in determining the actuarial present value of the projected benefit obligation for the Primary Plan and the Bargaining Plan was 3.36% and 3.61%, respectively, in 2019 and 4.47% and 4.63%, respectively, in 2018. The discount rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected benefit obligation for these pension plans. The Company determines an appropriate discount rate annually based on the annual yield on long-term corporate bonds as of the measurement date and reviews the discount rate assumption at the end of each year.
Pension costs were $10.6 million in 2019 and $5.3 million in 2018.
A 0.25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and net periodic pension cost of the Company-sponsored pension plans as follows:
|
(in thousands) |
|
0.25% Increase |
|
|
0.25% Decrease |
|
||
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 29, 2019 |
|
$ |
(11,957 |
) |
|
$ |
12,681 |
|
|
Net periodic pension cost in 2019 |
|
|
(391 |
) |
|
|
410 |
|
The weighted average expected long-term rate of return of plan assets used in computing net periodic pension costs for the Primary Plan was 5.00% in 2019 and 6.00% in 2018. The weighted average expected long-term rate of return of plan assets used in computing net periodic pension costs for the Bargaining Plan was 5.25% in 2019 and 6.00% in 2018. These rates reflect an estimate of long-term future returns for the pension plan assets. This estimate is primarily a function of the asset classes (equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time. This analysis includes expected long-term inflation and the risk premiums associated with equity and fixed income investments. See Note 18 to the consolidated financial statements for the details by asset type of the Company’s pension plan assets and the weighted average expected long-term rate of return of each asset type. The actual return on pension plan assets was a gain of 12.8% for the Primary Plan and a gain of 15.3% for the Bargaining Plan in 2019 and a loss of 3.0% for both the Primary Plan and the Bargaining Plan in 2018.
The Company sponsors a postretirement healthcare plan for employees meeting specified qualifying criteria. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and postretirement benefit obligation for this plan. These factors include assumptions about the discount rate and the expected growth rate for the cost of healthcare benefits. In addition, the Company uses subjective factors such as withdrawal and mortality rates to estimate the projected liability under this plan. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. The Company does not pre-fund its postretirement benefits and has the right to modify or terminate certain of these benefits in the future.
The discount rate assumption, the annual healthcare cost trend and the ultimate trend rate for healthcare costs are key estimates which can have a significant impact on the net periodic postretirement benefit cost and postretirement obligation in future periods. The Company annually determines the healthcare cost trend based on recent actual medical trend experience and projected experience for subsequent years.
The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on the annual yield on long-term corporate bonds as of each plan’s measurement date. The discount rate used in determining the postretirement benefit obligation was 3.32% in 2019 and 4.41% in 2018. The discount rate was derived using the Aon/Hewitt AA above median yield curve. Projected benefit payouts for each plan were matched to the Aon/Hewitt AA above median yield curve and an equivalent flat rate was derived.
A 0.25% increase or decrease in the discount rate assumption would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan as follows:
|
(in thousands) |
|
0.25% Increase |
|
|
0.25% Decrease |
|
||
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
Postretirement benefit obligation at December 29, 2019 |
|
$ |
(1,865 |
) |
|
$ |
1,968 |
|
|
Service cost and interest cost in 2019 |
|
|
(135 |
) |
|
|
141 |
|
38
A 1% increase or decrease in the annual healthcare cost trend would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan as follows:
|
(in thousands) |
|
1% Increase |
|
|
1% Decrease |
|
||
|
Postretirement benefit obligation at December 29, 2019 |
|
$ |
8,128 |
|
|
$ |
(7,123 |
) |
|
Service cost and interest cost in 2019 |
|
|
548 |
|
|
|
(489 |
) |
Recently Adopted Accounting Pronouncements
In February 2018, the FASB issued Accounting Standards Update (“ASU”) 2018‑02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which provides the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. This standard is required to be applied either in the period of adoption or retrospectively to each period in which the changes in the U.S. federal corporate income tax rate pursuant to the Tax Act are recognized. The new guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2018‑02 in 2019 and recognized a cumulative effect adjustment to the opening balance of retained earnings in 2019. The cumulative effect adjustment increased retained earnings by $19.7 million.
In February 2016, the FASB issued ASU 2016-02, “Leases” (the “lease standard”). The lease standard requires lessees to recognize a right of use asset and a lease liability for virtually all leases (other than leases meeting the definition of a short-term lease). The new guidance was effective for fiscal years beginning after December 15, 2018 and interim periods beginning the following fiscal year. The Company adopted the lease standard in 2019 using the optional transition method, as discussed in Note 10 to the consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016‑13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company plans to adopt ASU 2016‑13 in the first quarter of 2020 and does not expect the impact of adoption to have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019‑12, “Simplifying the Accounting for Income Taxes,” which will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2019‑12 will have on its consolidated financial statements.
39
Cautionary Information Regarding Forward-Looking Statements
Certain statements contained in this report, or in other public filings, press releases, or other written or oral communications made by the Company or its representatives, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things, Company plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance, including, but not limited to, the state of the economy, capital investment and financing plans, net sales, cost of sales, SD&A expenses, gross profit, income tax rates, earnings per diluted share, dividends, pension plan contributions and estimated acquisition related contingent consideration payments; or statements regarding the outcome or impact of certain new accounting pronouncements and pending or threatened litigation. These statements include:
|
|
• |
the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements; |
|
|
• |
the Company’s belief that, at any given time, less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers; |
|
|
• |
the Company’s belief that SAC, whose debt the Company guarantees, has sufficient assets and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee and that the cooperative will perform its obligations under its debt commitments; |
|
|
• |
the Company’s belief that it has, and that other manufacturers from whom the Company purchases finished products have, adequate production capacity to meet sales demand for sparkling and still beverages during peak periods; |
|
|
• |
the Company’s belief that the ultimate disposition of various claims and legal proceedings which have arisen in the ordinary course of its business will not have a material adverse effect on its financial condition, cash flows or results of operations and that no material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims and legal proceedings; |
|
|
• |
the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry and that sufficient competition exists in each of the exclusive geographic territories in which it operates to permit exclusive manufacturing, distribution and sales rights under the United States Soft Drink Interbrand Competition Act; |
|
|
• |
the Company’s belief that all of its facilities are in good condition and are adequate for the Company’s operations as presently conducted; |
|
|
• |
the Company’s belief that it has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months; |
|
|
• |
the Company’s belief that a sustained and planned charitable giving program to support communities is an essential component of the success of its brand and, by extension, its sales, and the Company’s intention to continue its charitable contributions in future years, subject to its financial performance and other business factors; |
|
|
• |
the Company’s belief that it will adopt ASU 2016‑13 in the first quarter of 2020 and the impact to its consolidated financial statements will not be material; |
|
|
• |
the Company’s expectation that one real estate lease commitment will commence in 2020, have lease terms of 10 years and that the additional lease liability associated with this future lease commitment is expected to be $40.2 million; |
|
|
• |
the Company’s intention to refinance amounts due in the next twelve months under the term loan facility using the capacity under the revolving credit facility; |
|
|
• |
the Company’s belief that all the banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company; |
|
|
• |
the Company’s estimate that a 10% increase in the market price of certain commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $58.2 million, assuming no change in volume; |
|
|
• |
the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but that such changes will not have a significant impact on the consolidated financial statements; |
|
|
• |
the Company’s belief that certain system governance initiatives will benefit the Company and the Coca‑Cola system, but that the failure of such mechanisms to function efficiently could impair the Company’s ability to realize the intended benefits of such initiatives; |
|
|
• |
the Company’s belief that innovation of both new brands and packages will continue to be important to the Company’s overall revenue; |
|
|
• |
the Company’s estimates of certain inputs used in its calculations, including estimated rates of return, estimates of bad debts and amounts that will ultimately be collected, and estimates of inputs used in the calculation and adjustment of the fair value of its acquisition related contingent consideration liability related to the distribution territories acquired as part of the System Transformation, such as the amounts that will be paid by the Company in the future under the CBA and the Company’s WACC; |
40
|
|
• |
the Company’s belief that, assuming no impairment of distribution agreements, net, amortization expense in future years based upon recorded amounts as of December 29, 2019 will be $24.3 million for each fiscal year 2020 through 2024; |
|
|
• |
the Company’s belief that, assuming no impairment of customer lists and other identifiable intangible assets, net, amortization expense in future years based upon recorded amounts as of December 29, 2019 will be approximately $1.8 million for each fiscal year 2020 through 2024; |
|
|
• |
the Company’s belief that the range of undiscounted amounts it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories acquired in the System Transformation, excluding territories the Company acquired in exchange transactions, is expected to be between $27 million and $51 million; |
|
|
• |
the Company’s belief that the range of its income tax payments is expected to be between $18 million and $28 million in 2020; |
|
|
• |
the Company’s expectations as to the amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic cost during 2020; |
|
|
• |
the Company’s belief that the covenants in its nonpublic debt will not restrict its liquidity or capital resources; |
|
|
• |
the Company’s belief that, based upon its periodic assessments of the financial condition of the institutions with which it maintains cash deposits, its risk of loss from the use of such major banks is minimal; |
|
|
• |
the Company’s belief that the counterparties to its contractual arrangements will perform their obligations; |
|
|
• |
the Company’s belief that contributions to the two Company-sponsored pension plans is expected to be in the range of $7 million to $12 million in 2020; |
|
|
• |
the Company’s belief that postretirement medical care payments are expected to be approximately $2.8 million in 2020; |
|
|
• |
the Company’s expectation that it will not withdraw from its participation in the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund; |
|
|
• |
the Company’s belief that additions to property, plant and equipment are expected to be in the range of $180 million to $210 million in 2020; |
|
|
• |
the Company’s belief that it has adequately provided for any assessments likely to result from audits by tax authorities in the jurisdictions in which the Company conducts business; |
|
|
• |
the Company’s expectations regarding potential changes in the levels of marketing funding support, external advertising and marketing spending from The Coca‑Cola Company and other beverage companies; |
|
|
• |
the Company’s expectation that new brand and product introductions, packaging changes and sales promotions will continue to require substantial expenditures; |
|
|
• |
the Company’s belief that compliance with environmental laws will not have a material adverse impact on its consolidated financial statements or competitive position; |
|
|
• |
the Company’s belief that the majority of its deferred tax assets will be realized; |
|
|
• |
the Company’s belief that key priorities include commercial execution, revenue management, supply chain optimization and cash flow generation; |
|
|
• |
the Company’s belief that its success is dependent on its ability to execute its commercial strategy within its customers’ stores; |
|
|
• |
the Company’s belief that integrating its Memphis, Tennessee production center with its West Memphis, Arkansas operations will greatly expand its West Memphis production capabilities and reduce its overall production costs; and |
|
|
• |
the Company’s hypothetical calculation that, if market interest rates average 1% more over the next twelve months than the interest rates as of December 29, 2019, interest expense for the next twelve months would increase by approximately $2.1 million, assuming no changes in the Company’s capital structure. |
These forward-looking statements may be identified by the use of the words “will,” “may,” “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” “could,” and other similar terms and expressions. Various risks, uncertainties and other factors may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in “Item 1A. Risk Factors” of this report, as well as other factors discussed throughout this report, including, without limitation, the factors described under “Critical Accounting Policies and Estimates” in Item 7 of this report, or in other filings or statements made by the Company. All of the forward-looking statements in this report and other documents or statements are qualified by these and other factors, risks and uncertainties.
Caution should be taken not to place undue reliance on the forward-looking statements included in this report. The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s other reports and documents filed with the SEC.
41
The Company is exposed to certain market risks that arise in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading or speculative purposes. A discussion of the Company’s primary market risk exposure and interest rate risk is presented below.
Debt and Derivative Financial Instruments
The Company is subject to interest rate risk on its variable rate debt, including its revolving credit facility and term loan facility. Assuming no changes in the Company’s capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of December 29, 2019, interest expense for the next 12 months would increase by approximately $2.1 million. This amount was determined by calculating the effect of the hypothetical interest rate on the unhedged portion of the Company’s variable rate debt. This calculated, hypothetical increase in interest expense for the following 12 months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s variable rate debt.
The Company’s acquisition related contingent consideration, which is adjusted to fair value each reporting period, is also impacted by changes in interest rates. The risk-free interest rate used to estimate the Company’s WACC is a component of the discount rate used to calculate the present value of future cash flows due under the Company’s comprehensive beverage agreement. As a result, any changes in the underlying risk-free interest rates will impact the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.
Raw Material and Commodity Prices
The Company is also subject to commodity price risk arising from price movements for certain commodities included as part of its raw materials. The Company manages this commodity price risk in some cases by entering into contracts with adjustable prices to hedge commodity purchases. The Company periodically uses derivative commodity instruments in the management of this risk. The Company estimates a 10% increase in the market prices of commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $58.2 million assuming no change in volume.
Fees paid by the Company for agreements to hedge commodity purchases are amortized over the corresponding period of the instruments. The Company accounts for commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses.
Effect of Changing Prices
The annual rate of inflation in the United States, as measured by year-over-year changes in the Consumer Price Index (the “CPI”), was 2.3% in 2019 and 2.4% in 2018. Inflation in the prices of those commodities important to the Company’s business is reflected in changes in the CPI, but commodity prices are volatile and in recent years have moved at a faster rate of change than the CPI.
The principal effect of inflation in both commodity and consumer prices on the Company’s operating results is to increase costs, both of goods sold and SD&A expenses. Although the Company can offset these cost increases by increasing selling prices for its products, consumers may not have the buying power to cover these increased costs and may reduce their volume of purchases of those products. In that event, selling price increases may not be sufficient to offset completely the Company’s cost increases.
42
COCA-COLA CONSOLIDATED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands, except per share data) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Net sales |
|
$ |
i 4,826,549 |
|
|
$ |
i 4,625,364 |
|
|
$ |
i 4,287,588 |
|
|
Cost of sales |
|
|
i 3,156,047 |
|
|
|
i 3,069,652 |
|
|
|
i 2,782,721 |
|
|
Gross profit |
|
|
i 1,670,502 |
|
|
|
i 1,555,712 |
|
|
|
i 1,504,867 |
|
|
Selling, delivery and administrative expenses |
|
|
i 1,489,748 |
|
|
|
i 1,497,810 |
|
|
|
i 1,403,320 |
|
|
Income from operations |
|
|
i 180,754 |
|
|
|
i 57,902 |
|
|
|
i 101,547 |
|
|
Interest expense, net |
|
|
i 45,990 |
|
|
|
i 50,506 |
|
|
|
i 41,869 |
|
|
Other expense, net |
|
|
i 100,539 |
|
|
|
i 30,853 |
|
|
|
i 9,565 |
|
|
Gain on exchange transactions |
|
|
- |
|
|
|
i 10,170 |
|
|
|
i 12,893 |
|
|
Income (loss) before income taxes |
|
|
i 34,225 |
|
|
|
( i 13,287 |
) |
|
|
i 63,006 |
|
|
Income tax expense (benefit) |
|
|
i 15,665 |
|
|
|
i 1,869 |
|
|
|
( i 39,841 |
) |
|
Net income (loss) |
|
|
i 18,560 |
|
|
|
( i 15,156 |
) |
|
|
i 102,847 |
|
|
Less: Net income attributable to noncontrolling interest |
|
|
i 7,185 |
|
|
|
i 4,774 |
|
|
|
i 6,312 |
|
|
Net income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
$ |
i 11,375 |
|
|
$ |
( i 19,930 |
) |
|
$ |
i 96,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
i 1.21 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.35 |
|
|
Weighted average number of Common Stock shares outstanding |
|
|
i 7,141 |
|
|
|
i 7,141 |
|
|
|
i 7,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
i 1.21 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.35 |
|
|
Weighted average number of Class B Common Stock shares outstanding |
|
|
i 2,229 |
|
|
|
i 2,209 |
|
|
|
i 2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
i 1.21 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.30 |
|
|
Weighted average number of Common Stock shares outstanding – assuming dilution |
|
|
i 9,417 |
|
|
|
i 9,350 |
|
|
|
i 9,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
i 1.19 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.29 |
|
|
Weighted average number of Class B Common Stock shares outstanding – assuming dilution |
|
|
i 2,276 |
|
|
|
i 2,209 |
|
|
|
i 2,228 |
|
See accompanying notes to consolidated financial statements.
43
COCA-COLA CONSOLIDATED, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Net income (loss) |
|
$ |
i 18,560 |
|
|
$ |
( i 15,156 |
) |
|
$ |
i 102,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans reclassification including pension costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain (loss) |
|
|
( i 20,484 |
) |
|
|
i 5,928 |
|
|
|
( i 6,225 |
) |
|
Prior service credits |
|
|
i 17 |
|
|
|
i 19 |
|
|
|
i 18 |
|
|
Postretirement benefits reclassification including benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain |
|
|
i 3,711 |
|
|
|
i 12,397 |
|
|
|
i 6,812 |
|
|
Prior service costs |
|
|
( i 975 |
) |
|
|
( i 1,393 |
) |
|
|
( i 1,935 |
) |
|
Interest rate swap |
|
|
( i 270 |
) |
|
|
- |
|
|
|
- |
|
|
Foreign currency translation adjustment |
|
|
( i 16 |
) |
|
|
( i 14 |
) |
|
|
i 25 |
|
|
Other comprehensive income (loss), net of tax |
|
|
( i 18,017 |
) |
|
|
i 16,937 |
|
|
|
( i 1,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
i 543 |
|
|
|
i 1,781 |
|
|
|
i 101,542 |
|
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
i 7,185 |
|
|
|
i 4,774 |
|
|
|
i 6,312 |
|
|
Comprehensive income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
$ |
( i 6,642 |
) |
|
$ |
( i 2,993 |
) |
|
$ |
i 95,230 |
|
See accompanying notes to consolidated financial statements.
44
COCA-COLA CONSOLIDATED, INC.
CONSOLIDATED BALANCE SHEETS
|
(in thousands, except share data) |
|
|
|
|
||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 9,614 |
|
|
$ |
i 13,548 |
|
|
Accounts receivable, trade |
|
|
i 433,552 |
|
|
|
i 436,890 |
|
|
Allowance for doubtful accounts |
|
|
( i 13,782 |
) |
|
|
( i 9,141 |
) |
|
Accounts receivable from The Coca-Cola Company |
|
|
i 62,411 |
|
|
|
i 44,915 |
|
|
Accounts receivable, other |
|
|
i 43,094 |
|
|
|
i 30,493 |
|
|
Inventories |
|
|
i 225,926 |
|
|
|
i 210,033 |
|
|
Prepaid expenses and other current assets |
|
|
i 69,461 |
|
|
|
i 70,680 |
|
|
Total current assets |
|
|
i 830,276 |
|
|
|
i 797,418 |
|
|
Property, plant and equipment, net |
|
|
i 997,403 |
|
|
|
i 990,532 |
|
|
Right of use assets - operating leases |
|
|
i 111,376 |
|
|
|
- |
|
|
Leased property under financing or capital leases, net |
|
|
i 17,960 |
|
|
|
i 23,720 |
|
|
Other assets |
|
|
i 113,269 |
|
|
|
i 115,490 |
|
|
Goodwill |
|
|
i 165,903 |
|
|
|
i 165,903 |
|
|
Distribution agreements, net |
|
|
i 876,096 |
|
|
|
i 900,383 |
|
|
Customer lists and other identifiable intangible assets, net |
|
|
i 14,643 |
|
|
|
i 16,482 |
|
|
Total assets |
|
$ |
i 3,126,926 |
|
|
$ |
i 3,009,928 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of obligations under operating leases |
|
$ |
i 15,024 |
|
|
$ |
- |
|
|
Current portion of obligations under financing or capital leases |
|
|
i 9,403 |
|
|
|
i 8,617 |
|
|
Accounts payable, trade |
|
|
i 187,476 |
|
|
|
i 152,040 |
|
|
Accounts payable to The Coca-Cola Company |
|
|
i 108,699 |
|
|
|
i 112,425 |
|
|
Other accrued liabilities |
|
|
i 208,834 |
|
|
|
i 250,246 |
|
|
Accrued compensation |
|
|
i 87,813 |
|
|
|
i 72,316 |
|
|
Accrued interest payable |
|
|
i 4,946 |
|
|
|
i 6,093 |
|
|
Total current liabilities |
|
|
i 622,195 |
|
|
|
i 601,737 |
|
|
Deferred income taxes |
|
|
i 125,130 |
|
|
|
i 127,174 |
|
|
Pension and postretirement benefit obligations |
|
|
i 114,831 |
|
|
|
i 85,682 |
|
|
Other liabilities |
|
|
i 668,566 |
|
|
|
i 609,135 |
|
|
Noncurrent portion of obligations under operating leases |
|
|
i 97,765 |
|
|
|
- |
|
|
Noncurrent portion of obligations under financing or capital leases |
|
|
i 17,403 |
|
|
|
i 26,631 |
|
|
Long-term debt |
|
|
i 1,029,920 |
|
|
|
i 1,104,403 |
|
|
Total liabilities |
|
|
i 2,675,810 |
|
|
|
i 2,554,762 |
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock, $ i i 100.00 / par value: authorized - i i 50,000 / shares; issued - i i none / |
|
|
|
|
|
|
|
|
|
Nonconvertible Preferred Stock, $ i i 100.00 / par value: authorized - i i 50,000 / shares; issued - i i none / |
|
|
|
|
|
|
|
|
|
Preferred Stock, $ i i 0.01 / par value: authorized - i i 20,000,000 / shares; issued - i i none / |
|
|
|
|
|
|
|
|
|
Common Stock, $ i i 1.00 / par value: authorized - i i 30,000,000 / shares; issued - i i 10,203,821 / shares |
|
|
i 10,204 |
|
|
|
i 10,204 |
|
|
Class B Common Stock, $ i i 1.00 / par value: authorized - i i 10,000,000 / shares; issued - i 2,860,356 and i 2,841,132 shares, respectively |
|
|
i 2,860 |
|
|
|
i 2,839 |
|
|
Class C Common Stock, $ i i 1.00 / par value: authorized - i i 20,000,000 / shares; issued - i i none / |
|
|
|
|
|
|
|
|
|
Capital in excess of par value |
|
|
i 128,983 |
|
|
|
i 124,228 |
|
|
Retained earnings |
|
|
i 381,161 |
|
|
|
i 359,435 |
|
|
Accumulated other comprehensive loss |
|
|
( i 115,002 |
) |
|
|
( i 77,265 |
) |
|
Treasury stock, at cost: Common Stock - i i 3,062,374 / shares |
|
|
( i 60,845 |
) |
|
|
( i 60,845 |
) |
|
Treasury stock, at cost: Class B Common Stock - i i 628,114 / shares |
|
|
( i 409 |
) |
|
|
( i 409 |
) |
|
Total equity of Coca-Cola Consolidated, Inc. |
|
|
i 346,952 |
|
|
|
i 358,187 |
|
|
Noncontrolling interest |
|
|
i 104,164 |
|
|
|
i 96,979 |
|
|
Total equity |
|
|
i 451,116 |
|
|
|
i 455,166 |
|
|
Total liabilities and equity |
|
$ |
i 3,126,926 |
|
|
$ |
i 3,009,928 |
|
See accompanying notes to consolidated financial statements.
45
COCA-COLA CONSOLIDATED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
i 18,560 |
|
|
$ |
( i 15,156 |
) |
|
$ |
i 102,847 |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense from property, plant and equipment and financing or capital leases |
|
|
i 156,886 |
|
|
|
i 164,502 |
|
|
|
i 150,422 |
|
|
Amortization of intangible assets and deferred proceeds, net |
|
|
i 23,030 |
|
|
|
i 22,754 |
|
|
|
i 18,419 |
|
|
Fair value adjustment of acquisition related contingent consideration |
|
|
i 92,788 |
|
|
|
i 28,767 |
|
|
|
i 3,226 |
|
|
Impairment of property, plant and equipment |
|
|
i 8,798 |
|
|
|
i 453 |
|
|
|
- |
|
|
Loss on sale of property, plant and equipment |
|
|
i 6,498 |
|
|
|
i 7,103 |
|
|
|
i 4,492 |
|
|
Deferred income taxes |
|
|
i 3,987 |
|
|
|
i 9,366 |
|
|
|
( i 58,111 |
) |
|
Stock compensation expense |
|
|
i 2,045 |
|
|
|
i 5,606 |
|
|
|
i 7,922 |
|
|
Amortization of debt costs |
|
|
i 1,313 |
|
|
|
i 1,477 |
|
|
|
i 1,082 |
|
|
Gain on exchange transactions |
|
|
- |
|
|
|
( i 10,170 |
) |
|
|
( i 12,893 |
) |
|
Proceeds from Legacy Facilities Credit |
|
|
- |
|
|
|
i 1,320 |
|
|
|
i 30,647 |
|
|
Proceeds from Territory Conversion Fee |
|
|
- |
|
|
|
- |
|
|
|
i 91,450 |
|
|
System Transformation transactions settlements |
|
|
- |
|
|
|
- |
|
|
|
( i 6,996 |
) |
|
Gain on acquisition of Southeastern Container preferred shares in CCR redistribution |
|
|
- |
|
|
|
- |
|
|
|
( i 6,012 |
) |
|
Change in current assets less current liabilities (exclusive of acquisitions) |
|
|
( i 31,681 |
) |
|
|
( i 26,387 |
) |
|
|
i 259 |
|
|
Change in other noncurrent assets (exclusive of acquisitions) |
|
|
i 15,201 |
|
|
|
i 4,347 |
|
|
|
( i 17,916 |
) |
|
Change in other noncurrent liabilities (exclusive of acquisitions) |
|
|
( i 7,203 |
) |
|
|
( i 25,122 |
) |
|
|
( i 1,100 |
) |
|
Other |
|
|
i 148 |
|
|
|
i 19 |
|
|
|
i 78 |
|
|
Total adjustments |
|
|
i 271,810 |
|
|
|
i 184,035 |
|
|
|
i 204,969 |
|
|
Net cash provided by operating activities |
|
$ |
i 290,370 |
|
|
$ |
i 168,879 |
|
|
$ |
i 307,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment (exclusive of acquisitions) |
|
$ |
( i 171,374 |
) |
|
$ |
( i 138,235 |
) |
|
$ |
( i 176,601 |
) |
|
Other distribution agreements |
|
|
( i 4,654 |
) |
|
|
- |
|
|
|
- |
|
|
Proceeds from the sale of property, plant and equipment |
|
|
i 4,064 |
|
|
|
i 5,259 |
|
|
|
i 608 |
|
|
Investment in CONA Services LLC |
|
|
( i 1,713 |
) |
|
|
( i 2,098 |
) |
|
|
( i 3,615 |
) |
|
Net cash paid for exchange transactions |
|
|
- |
|
|
|
( i 13,116 |
) |
|
|
( i 19,393 |
) |
|
Proceeds from cold drink equipment |
|
|
- |
|
|
|
i 3,789 |
|
|
|
i 8,400 |
|
|
Acquisition of distribution territories and manufacturing plants, net of cash acquired and purchase price settlements |
|
|
- |
|
|
|
i 456 |
|
|
|
( i 265,060 |
) |
|
Glacéau distribution agreement consideration |
|
|
- |
|
|
|
- |
|
|
|
( i 15,598 |
) |
|
Portion of Legacy Facilities Credit related to Mobile, Alabama facility |
|
|
- |
|
|
|
- |
|
|
|
i 12,364 |
|
|
Net cash used in investing activities |
|
$ |
( i 173,677 |
) |
|
$ |
( i 143,945 |
) |
|
$ |
( i 458,895 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on revolving credit facility |
|
$ |
( i 550,339 |
) |
|
$ |
( i 483,000 |
) |
|
$ |
( i 393,000 |
) |
|
Borrowing under revolving credit facility |
|
|
i 515,339 |
|
|
|
i 356,000 |
|
|
|
i 448,000 |
|
|
Payments on term loan facility and senior notes |
|
|
( i 140,000 |
) |
|
|
( i 7,500 |
) |
|
|
- |
|
|
Proceeds from issuance of senior notes |
|
|
i 100,000 |
|
|
|
i 150,000 |
|
|
|
i 125,000 |
|
|
Payments of acquisition related contingent consideration |
|
|
( i 27,182 |
) |
|
|
( i 24,683 |
) |
|
|
( i 16,738 |
) |
|
Cash dividends paid |
|
|
( i 9,369 |
) |
|
|
( i 9,353 |
) |
|
|
( i 9,328 |
) |
|
Payments on financing or capital lease obligations |
|
|
( i 8,656 |
) |
|
|
( i 8,221 |
) |
|
|
( i 7,485 |
) |
|
Debt issuance fees |
|
|
( i 420 |
) |
|
|
( i 1,531 |
) |
|
|
( i 318 |
) |
|
Net cash provided by (used in) financing activities |
|
$ |
( i 120,627 |
) |
|
$ |
( i 28,288 |
) |
|
$ |
i 146,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
$ |
( i 3,934 |
) |
|
$ |
( i 3,354 |
) |
|
$ |
( i 4,948 |
) |
|
Cash at beginning of year |
|
|
i 13,548 |
|
|
|
i 16,902 |
|
|
|
i 21,850 |
|
|
Cash at end of year |
|
$ |
i 9,614 |
|
|
$ |
i 13,548 |
|
|
$ |
i 16,902 |
|
See accompanying notes to consolidated financial statements.
46
COCA-COLA CONSOLIDATED, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
(in thousands, except share data) |
|
Common Stock |
|
|
Class B Common Stock |
|
|
Capital in Excess of Par Value |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Treasury Stock - Common Stock |
|
|
Treasury Stock - Class B Common Stock |
|
|
Total Equity of Coca-Cola Consolidated, Inc. |
|
|
Non- controlling Interest |
|
|
Total Equity |
|
||||||||||
|
Balance on January 1, 2017 |
|
$ |
i 10,204 |
|
|
$ |
i 2,798 |
|
|
$ |
i 116,769 |
|
|
$ |
i 301,511 |
|
|
$ |
( i 92,897 |
) |
|
$ |
( i 60,845 |
) |
|
$ |
( i 409 |
) |
|
$ |
i 277,131 |
|
|
$ |
i 85,893 |
|
|
$ |
i 363,024 |
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 96,535 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 96,535 |
|
|
|
i 6,312 |
|
|
|
i 102,847 |
|
|
Other comprehensive loss, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 1,305 |
) |
|
|
- |
|
|
|
- |
|
|
|
( i 1,305 |
) |
|
|
- |
|
|
|
( i 1,305 |
) |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock ($ i 1.00 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 7,141 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 7,141 |
) |
|
|
- |
|
|
|
( i 7,141 |
) |
|
Class B Common Stock ($ i 1.00 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,187 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,187 |
) |
|
|
- |
|
|
|
( i 2,187 |
) |
|
Issuance of i 21,020 shares of Class B Common Stock |
|
|
- |
|
|
|
i 21 |
|
|
|
i 3,648 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 3,669 |
|
|
|
- |
|
|
|
i 3,669 |
|
|
Balance on December 31, 2017 |
|
$ |
i 10,204 |
|
|
$ |
i 2,819 |
|
|
$ |
i 120,417 |
|
|
$ |
i 388,718 |
|
|
$ |
( i 94,202 |
) |
|
$ |
( i 60,845 |
) |
|
$ |
( i 409 |
) |
|
$ |
i 366,702 |
|
|
$ |
i 92,205 |
|
|
$ |
i 458,907 |
|
|
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 19,930 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 19,930 |
) |
|
|
i 4,774 |
|
|
|
( i 15,156 |
) |
|
Other comprehensive income, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 16,937 |
|
|
|
- |
|
|
|
- |
|
|
|
i 16,937 |
|
|
|
- |
|
|
|
i 16,937 |
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock ($ i 1.00 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 7,141 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 7,141 |
) |
|
|
- |
|
|
|
( i 7,141 |
) |
|
Class B Common Stock ($ i 1.00 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,212 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,212 |
) |
|
|
- |
|
|
|
( i 2,212 |
) |
|
Issuance of i 20,296 shares of Class B Common Stock |
|
|
- |
|
|
|
i 20 |
|
|
|
i 3,811 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 3,831 |
|
|
|
- |
|
|
|
i 3,831 |
|
|
Balance on December 30, 2018 |
|
$ |
i 10,204 |
|
|
$ |
i 2,839 |
|
|
$ |
i 124,228 |
|
|
$ |
i 359,435 |
|
|
$ |
( i 77,265 |
) |
|
$ |
( i 60,845 |
) |
|
$ |
( i 409 |
) |
|
$ |
i 358,187 |
|
|
$ |
i 96,979 |
|
|
$ |
i 455,166 |
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 11,375 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 11,375 |
|
|
|
i 7,185 |
|
|
|
i 18,560 |
|
|
Other comprehensive loss, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 18,017 |
) |
|
|
- |
|
|
|
- |
|
|
|
( i 18,017 |
) |
|
|
- |
|
|
|
( i 18,017 |
) |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock ($ i 1.00 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 7,141 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 7,141 |
) |
|
|
- |
|
|
|
( i 7,141 |
) |
|
Class B Common Stock ($ i 1.00 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,228 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,228 |
) |
|
|
- |
|
|
|
( i 2,228 |
) |
|
Issuance of i 19,224 shares of Class B Common Stock |
|
|
- |
|
|
|
i 21 |
|
|
|
i 4,755 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 4,776 |
|
|
|
- |
|
|
|
i 4,776 |
|
|
Reclassification of stranded tax effects |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 19,720 |
|
|
|
( i 19,720 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance on December 29, 2019 |
|
$ |
i 10,204 |
|
|
$ |
i 2,860 |
|
|
$ |
i 128,983 |
|
|
$ |
i 381,161 |
|
|
$ |
( i 115,002 |
) |
|
$ |
( i 60,845 |
) |
|
$ |
( i 409 |
) |
|
$ |
i 346,952 |
|
|
$ |
i 104,164 |
|
|
$ |
i 451,116 |
|
See accompanying notes to consolidated financial statements.
47
COCA-COLA CONSOLIDATED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
|
1. |
Description of Business and Summary of Significant Accounting Policies |
i
Description of Business
Coca‑Cola Consolidated, Inc. (the “Company”) produces, markets and distributes nonalcoholic beverages, primarily products of The Coca‑Cola Company, and is the largest Coca‑Cola bottler in the United States. Approximately i 85% of the Company’s total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. The Company also distributes products for several other beverage companies, including BA Sports Nutrition, LLC (“BodyArmor”), Keurig Dr Pepper Inc. (“Dr Pepper”) and Monster Energy Company (“Monster Energy”).
The Company manages its business on the basis of i three operating segments. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations. The additional i two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.”
Piedmont Coca-Cola Bottling Partnership (“Piedmont”) is the Company’s only subsidiary that has a significant third-party noncontrolling interest. Piedmont distributes and markets nonalcoholic beverages in portions of North Carolina and South Carolina. The Company provides a portion of these nonalcoholic beverage products to Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. See Note 2 for additional information.
/i
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
i
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
i
Fiscal Year
The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The fiscal years presented are the 52‑week periods ended December 29, 2019 (“2019”), December 30, 2018 (“2018”) and December 31, 2017 (“2017”).
i
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and cash equivalents, which are highly liquid debt instruments with maturities of less than 90 days. The Company maintains cash deposits with major banks, which, from time to time, may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes the risk of any loss is minimal.
i
Accounts Receivable, Trade
The Company sells its products to mass merchandisers, supermarkets, convenience stores and other customers and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company’s trade accounts receivable are typically collected within i 30 days from the date of sale.
/ i
Allowance for Doubtful Accounts
The Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectibility of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its
/48
financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.
i
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out method for finished products and manufacturing materials and on the average cost method for plastic shells, plastic pallets and other inventories.
i
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements on operating leases are depreciated over the shorter of the estimated useful lives or the term of the lease, including renewal options the Company determines are reasonably assured. Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements are charged to expense when incurred. When assets are replaced or otherwise disposed, the cost and accumulated depreciation are removed from the accounts and the gains or losses, if any, are reflected in the statements of operations. Gains or losses on the disposal of manufacturing equipment and manufacturing plants are included in cost of sales. Gains or losses on the disposal of all other property, plant and equipment are included in selling, delivery and administrative (“SD&A”) expenses.
The Company evaluates the recoverability of the carrying amount of its property, plant and equipment when events or circumstances indicate the carrying amount of an asset or asset group may not be recoverable. These evaluations are performed at a level where independent cash flows may be attributed to either an asset or an asset group. If the Company determines the carrying amount of an asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets.
i
Leases
See Note 10 for information on the Company’s operating lease and financing lease policies.
i
Internal Use Software
The Company capitalizes costs incurred in the development or acquisition of internal use software. The Company expenses costs incurred in the preliminary project planning stage. Costs, such as maintenance and training, are also expensed as incurred. Capitalized costs are amortized over their estimated useful lives using the straight-line method. Amortization expense, which is included in depreciation expense, for internal-use software was $ i 7.7 million in 2019, $ i 10.0 million in 2018 and $ i 11.9 million in 2017.
/i
Goodwill
All business combinations are accounted for using the acquisition method. Goodwill is tested for impairment annually, or more frequently if facts and circumstances indicate such assets may be impaired. The Company performs its annual impairment test, which includes a qualitative assessment to determine whether it is more likely than not that the fair value of the goodwill is below its carrying value, as of the first day of the fourth quarter each year, and more often if there are significant changes in business conditions that could result in impairment.
All of the Company’s goodwill resides within one reporting unit within the Nonalcoholic Beverages reportable segment, and, therefore, the Company has determined it has one reporting unit for the purpose of assessing goodwill for potential impairment. The Company uses its overall market capitalization as part of its estimate of fair value of the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value.
When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting unit considering three different approaches:
|
|
• |
market value, using the Company’s stock price plus outstanding debt; |
|
|
• |
discounted cash flow analysis; and |
|
|
• |
multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data. |
The estimated fair value of the reporting unit is then compared to its carrying amount, including goodwill. If the estimated fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount, including goodwill, exceeds its estimated fair value, any excess of the carrying value of goodwill of the reporting unit over its fair value is recorded as an impairment.
49
To the extent the actual and projected cash flows decline in the future or if market conditions or market capitalization significantly deteriorate, the Company may be required to perform an interim impairment analysis that could result in an impairment of goodwill.
i
Distribution Agreements, Customer Lists and Other Identifiable Intangible Assets
The Company’s definite-lived intangible assets primarily consist of distribution rights and customer relationships, which have estimated useful lives of i 10 to i 40 years and i five to i 12 years, respectively. These assets are amortized on a straight-line basis over their estimated useful lives.
/i
Acquisition Related Contingent Consideration Liability
The acquisition related contingent consideration liability consists of the estimated amounts due to The Coca‑Cola Company under the Company’s comprehensive beverage agreement with The Coca‑Cola Company and Coca‑Cola Refreshments, USA, Inc. (“CCR”), a wholly owned subsidiary of The Coca‑Cola Company, (the “CBA”) over the remaining useful life of the related distribution rights. Under the CBA, the Company makes quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell certain beverages and beverage products in the distribution territories acquired in the System Transformation (as defined in Note 3), but excluding territories the Company acquired in an exchange transaction. This acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data, which are considered Level 3 inputs.
Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction, to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC. These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, which is generally i 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.
/i
Pension and Postretirement Benefit Plans
There are i two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarial determined amounts and are limited to the amounts currently deductible for income tax purposes. The Company also sponsors a postretirement healthcare plan for employees meeting specified criteria.
The expense and liability amounts recorded for the benefit plans reflect estimates related to interest rates, investment returns, employee turnover and age at retirement, mortality rates and healthcare costs. The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on yield rates available on double-A bonds as of each plan’s measurement date. The service cost components of the net periodic benefit cost of the plans are charged to current operations, and the non-service cost components of net periodic benefit cost of the plans are classified as other expense, net. In addition, certain other union employees are covered by plans provided by their respective union organizations and the Company expenses amounts as paid in accordance with union agreements.
/i
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating losses and tax credit carryforwards, as well as differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance will be provided against deferred tax assets if the Company determines it is more likely than not such assets will not ultimately be realized.
50
The Company does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the Company’s judgment, is greater than i 50 percent likely to be realized. The Company records interest and penalties related to uncertain tax positions in income tax expense.
i
Revenue Recognition
See Note 4 for information on the Company’s revenue recognition policy.
i
Marketing Programs and Sales Incentives
The Company participates in various marketing and sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. In addition, coupon programs are deployed on a territory-specific basis. The cost of these various marketing programs and sales incentives with The Coca‑Cola Company and other beverage companies is included as a deduction to net sales. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels and/or for participating in specific marketing programs.
i
Marketing Funding Support
The Company receives marketing funding support payments in cash from The Coca‑Cola Company and other beverage companies. Payments to the Company for marketing programs to promote bottle/can sales volume and fountain syrup sales volume are recognized as a reduction of cost of sales, primarily on a per unit basis, as the product is sold. Payments for periodic programs are recognized in the period during which they are earned.
Cash consideration received by a customer from a vendor is presumed to be a reduction of the price of the vendor’s products or services. As such, the cash received is accounted for as a reduction of cost of sales unless it is a specific reimbursement of costs or payments for services. Payments the Company receives from The Coca‑Cola Company and other beverage companies for marketing funding support are classified as reductions of cost of sales.
i
Derivative Financial Instruments
The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.
The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company generally pays a fee for these instruments, which is amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income reflected as an adjustment of related costs which are included in either cost of sales or SD&A expenses.
i
Risk Management Programs
The Company uses various insurance structures to manage its workers’ compensation, auto liability, medical and other insurable risks. These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically finance, transfer and mitigate the financial impact of losses to the Company. Losses are accrued using assumptions and procedures followed in the insurance industry, adjusted for company-specific history and expectations.
i
Cost of Sales
Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished goods from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies.
51
i
Selling, Delivery and Administrative Expenses
SD&A expenses include the following: sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs.
The Company has three primary delivery systems: (i) bulk delivery for large supermarkets, mass merchandisers and club stores, (ii) advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premise accounts and (iii) full-service delivery for its full-service vending customers.
i
Shipping and Handling Costs
Shipping and handling costs related to the movement of finished goods from manufacturing locations to distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses and totaled $ i 623.4 million in 2019, $ i 610.7 million in 2018 and $ i 550.9 million in 2017.
/i
Stock Compensation
In 2008, the stockholders of the Company approved a performance unit award agreement (the “Performance Unit Award Agreement”) for J. Frank Harrison, III, the Company’s Chairman of the Board of Directors and Chief Executive Officer, consisting of i 400,000 performance units (“Units”) subject to vesting in annual increments over a i 10-year period starting in fiscal year 2009. The Performance Unit Award Agreement expired at the end of i 2018, with the final award issued in the first quarter of 2019 in connection with Mr. Harrison’s services during 2018.
In 2018, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) and the Company’s stockholders approved a long-term performance equity plan (the “Long-Term Performance Equity Plan”) to succeed the Performance Unit Award Agreement. Awards granted to Mr. Harrison under the Long-Term Performance Equity Plan will be earned based on the Company’s attainment during a performance period of performance measures specified by the Compensation Committee. Mr. Harrison may elect to have awards earned under the Long‑Term Performance Equity Plan settled in cash and/or shares of Class B Common Stock. See Note 23 for additional information on Mr. Harrison’s stock compensation programs.
/i
Net Income Per Share
The Company applies the two-class method for calculating and presenting net income per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared or accumulated and participation rights in undistributed earnings. Under this method:
|
|
(a) |
Income from continuing operations (“net income”) is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid for the current period. |
|
|
(b) |
The remaining earnings (“undistributed earnings”) are allocated to Common Stock and Class B Common Stock to the extent each security may share in earnings as if all the earnings for the period had been distributed. The total earnings allocated to each security is determined by adding together the amount allocated for dividends and the amount allocated for a participation feature. |
|
|
(c) |
The total earnings allocated to each security is then divided by the number of outstanding shares of the security to which the earnings are allocated to determine the earnings per share for the security. |
|
|
(d) |
Basic and diluted net income per share data are presented for each class of common stock. |
In applying the two-class method, the Company determined undistributed earnings should be allocated equally on a per share basis between the Common Stock and Class B Common Stock due to the aggregate participation rights of the Class B Common Stock (i.e., the voting and conversion rights) and the Company’s history of paying dividends equally on a per share basis on the Common Stock and Class B Common Stock.
Under the Company’s certificate of incorporation, the Board of Directors may declare dividends on Common Stock without declaring equal or any dividends on the Class B Common Stock. Notwithstanding this provision, Class B Common Stock has voting and conversion rights that allow the Class B Common Stock to participate equally on a per share basis with the Common Stock.
52
The Class B Common Stock is entitled to i 20 votes per share and the Common Stock is entitled to i one vote per share with respect to each matter to be voted upon by the stockholders of the Company. Except as otherwise required by law, the holders of the Class B Common Stock and Common Stock vote together as a single class on all matters submitted to the Company’s stockholders, including the election of the Board of Directors. As a result, the holders of the Class B Common Stock control approximately i 86% of the total voting power of the stockholders of the Company and control the election of the Board of Directors. The Board of Directors has declared, and the Company has paid, dividends on the Class B Common Stock and Common Stock and each class of common stock has participated equally in all dividends declared by the Board of Directors and paid by the Company since 1994.
The Class B Common Stock conversion rights allow the Class B Common Stock to participate in dividends equally with the Common Stock. The Class B Common Stock is convertible into Common Stock on a i one-for-one per share basis at any time at the option of the holder. Accordingly, the holders of the Class B Common Stock can participate equally in any dividends declared on the Common Stock by exercising their conversion rights.
Basic net income per share excludes potential common shares that were dilutive and is computed by dividing net income available for common stockholders by the weighted average number of Common and Class B Common shares outstanding. Diluted net income per share for Common Stock and Class B Common Stock gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. The Company does i not have anti-dilutive shares.
i
Recently Adopted Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018‑02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which provides the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. This standard is required to be applied either in the period of adoption or retrospectively to each period in which the changes in the U.S. federal corporate income tax rate pursuant to the Tax Act are recognized. The new guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2018‑02 in 2019 and recognized a cumulative effect adjustment to the opening balance of retained earnings in 2019. The cumulative effect adjustment increased retained earnings by $ i 19.7 million.
In February 2016, the FASB issued ASU 2016-02, “Leases” (the “lease standard”). The lease standard requires lessees to recognize a right of use asset and a lease liability for virtually all leases (other than leases meeting the definition of a short-term lease). The new guidance was effective for fiscal years beginning after December 15, 2018 and interim periods beginning the following fiscal year. The Company adopted the lease standard in 2019 using the optional transition method. See Note 10 for additional information on the Company’s adoption of the lease standard.
/i
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016‑13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company plans to adopt ASU 2016‑13 in the first quarter of 2020 and does not expect the impact of adoption to have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019‑12, “Simplifying the Accounting for Income Taxes,” which will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2019‑12 will have on its consolidated financial statements.
i
|
2. |
Piedmont Coca-Cola Bottling Partnership |
The Company and The Coca‑Cola Company formed Piedmont to distribute and market nonalcoholic beverages primarily in portions of North Carolina and South Carolina. The Company provides a portion of the nonalcoholic beverage products that Piedmont distributes and markets to Piedmont at cost and receives a fee for managing Piedmont’s operations pursuant to a management agreement. All transactions with Piedmont, including the financing arrangements described below, are intercompany transactions and are eliminated in the Company’s consolidated financial statements.
Noncontrolling interest represents the portion of Piedmont owned by The Coca‑Cola Company, which was i i i 22.7 / / % for all periods presented. Noncontrolling interest income of $ i 7.2 million in 2019, $ i 4.8 million in 2018 and $ i 6.3 million in 2017 is included in net
/53
income on the Company’s consolidated statements of operations. In addition, the amount of consolidated net income attributable to both the Company and noncontrolling interest are shown on the Company’s consolidated statements of operations. Noncontrolling interest is included in the equity section of the Company’s consolidated balance sheets and totaled $ i 104.2 million on December 29, 2019 and $ i 97.0 million on December 30, 2018.
The Company has agreed to provide financing to Piedmont up to $ i 100.0 million under an agreement that expires on i December 31, 2020 with automatic one-year renewal periods unless either the Company or Piedmont provides i 10 days’ prior written notice of cancellation to the other party before any such one-year renewal period begins. Piedmont pays the Company interest on its borrowings at the Company’s average monthly cost of borrowing, taking into account all indebtedness of the Company and its consolidated subsidiaries and as determined as of the last business day of each calendar month, plus i 0.5%. There were i no amounts outstanding under this agreement at December 29, 2019.
Piedmont has agreed to provide financing to the Company up to $ i 200.0 million under an agreement that expires i December 31, 2022 with automatic one-year renewal periods unless a demand for payment of any amount borrowed by the Company is made by Piedmont prior to any such termination date. Borrowings under the revolving loan agreement bear interest on a monthly basis at a rate that is the average rate for the month on A1/P1-rated commercial paper with a i 30-day maturity, which was i 1.74% at December 29, 2019. As of December 29, 2019, there was a balance outstanding under this agreement of $ i 163.3 million, which has been eliminated in the consolidated financial statements.
i
|
3. |
Related Party Transactions |
The Coca‑Cola Company
The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured.
J. Frank Harrison, III, the Chairman of the Board of Directors and Chief Executive Officer of the Company, together with the trustees of certain trusts established for the benefit of certain relatives of the late J. Frank Harrison, Jr., control shares representing approximately i 86% of the total voting power of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis. As of December 29, 2019, The Coca‑Cola Company owned approximately i 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately i 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have its designee proposed by the Company for nomination to the Company’s Board of Directors, and J. Frank Harrison, III and the trustees of the J. Frank Harrison, Jr. family trusts described above, have agreed to vote the shares of the Company’s Class B Common Stock which they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.
i
The following table summarizes the significant transactions between the Company and The Coca‑Cola Company:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Payments made by the Company to The Coca-Cola Company for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate, syrup, sweetener and other purchases |
|
$ |
i 1,187,889 |
|
|
$ |
i 1,188,818 |
|
|
$ |
i 1,085,898 |
|
|
Customer marketing programs |
|
|
i 144,949 |
|
|
|
i 145,019 |
|
|
|
i 139,542 |
|
|
Cold drink equipment parts |
|
|
i 28,209 |
|
|
|
i 30,065 |
|
|
|
i 25,381 |
|
|
Brand investment programs |
|
|
i 13,266 |
|
|
|
i 9,063 |
|
|
|
i 8,582 |
|
|
Glacéau distribution agreement consideration |
|
|
- |
|
|
|
- |
|
|
|
i 15,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments made by The Coca-Cola Company to the Company for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing funding support payments |
|
$ |
i 98,013 |
|
|
$ |
i 86,483 |
|
|
$ |
i 83,177 |
|
|
Fountain delivery and equipment repair fees |
|
|
i 41,714 |
|
|
|
i 40,023 |
|
|
|
i 35,335 |
|
|
Presence marketing funding support on the Company’s behalf |
|
|
i 8,002 |
|
|
|
i 8,311 |
|
|
|
i 4,843 |
|
|
Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers |
|
|
i 5,069 |
|
|
|
i 9,683 |
|
|
|
i 10,474 |
|
|
Cold drink equipment |
|
|
- |
|
|
|
i 3,789 |
|
|
|
i 8,400 |
|
|
Legacy Facilities Credit (excluding portion related to Mobile, Alabama facility) |
|
|
- |
|
|
|
i 1,320 |
|
|
|
i 30,647 |
|
|
Conversion of bottling agreements |
|
|
- |
|
|
|
- |
|
|
|
i 91,450 |
|
|
Portion of Legacy Facilities Credit related to Mobile, Alabama facility |
|
|
- |
|
|
|
- |
|
|
|
i 12,364 |
|
54
In October 2017, the Company completed a multi-year series of transactions with The Coca‑Cola Company, CCR and Coca‑Cola Bottling Company United, Inc., an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets.
In 2017, The Coca‑Cola Company agreed to provide the Company a fee to compensate the Company for the net economic impact of changes made by The Coca‑Cola Company to the authorized pricing on sales of covered beverages produced at certain manufacturing facilities owned by Company (the “Legacy Facilities Credit”). The Company immediately recognized the portion of the Legacy Facilities Credit applicable to a regional manufacturing facility in Mobile, Alabama which the Company transferred to CCR in October 2017, and the remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of i 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current.
Additionally, in 2017, the Company made a payment of $ i 15.6 million to obtain the rights to market, promote, distribute and sell glacéau vitaminwater, glacéau smartwater and glacéau vitaminwater zero drops in certain geographic territories including the District of Columbia and portions of Delaware, Maryland and Virginia, pursuant to an agreement entered into by the Company, The Coca‑Cola Company and CCR. This payment represented a portion of the total payment made by The Coca‑Cola Company to terminate a distribution arrangement with a prior distributor in this territory.
Coca‑Cola Refreshments USA, Inc.
The Company, The Coca-Cola Company and CCR entered into the CBA on March 31, 2017. Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in distribution territories the Company acquired from CCR as part of the System Transformation, but excluding territories the Company acquired in an exchange transaction. These sub-bottling payments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands.
Sub-bottling payments to CCR were $ i 27.2 million in 2019, $ i 24.7 million in 2018 and $ i 16.7 million in 2017. i The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub‑bottling payments to CCR:
|
(in thousands) |
|
|
|
|
||||
|
Current portion of acquisition related contingent consideration |
|
$ |
i 41,087 |
|
|
$ |
i 32,993 |
|
|
Noncurrent portion of acquisition related contingent consideration |
|
|
i 405,597 |
|
|
|
i 349,905 |
|
|
Total acquisition related contingent consideration |
|
$ |
i 446,684 |
|
|
$ |
i 382,898 |
|
Upon the conversion of the Company’s then-existing bottling agreements in 2017 pursuant to the CBA, the Company received a fee from CCR (the “Territory Conversion Fee”). The Territory Conversion Fee was equivalent to i 0.5 times the EBITDA the Company and its subsidiaries generated during the 12-month period ended January 1, 2017 from sales in the distribution territories the Company served prior to the System Transformation of certain beverages owned by or licensed to The Coca‑Cola Company or Monster Energy Company on which the Company and its subsidiaries pay, and The Coca‑Cola Company receives, a facilitation fee. The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of i 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current.
The Company previously had a production arrangement with CCR to buy and sell finished products at cost and transported products for CCR to the Company’s and other Coca‑Cola bottlers’ locations. Following the completion of the System Transformation in October 2017, the Company no longer transacts with CCR other than making quarterly sub-bottling payments. During 2017, the Company had purchases from CCR of $ i 114.9 million, gross sales to CCR of $ i 76.7 million and sales to CCR for transporting CCR’s product of $ i 2.0 million.
Southeastern Container (“Southeastern”)
The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the consolidated balance sheets, was $ i 23.2 million as of December 29, 2019 and $ i 23.6 million as of December 30, 2018.
55
In 2017, CCR redistributed a portion of its investment in Southeastern. As a result of this redistribution, the Company increased its investment in Southeastern by $ i 6.0 million, which was recorded as income in other expense, net in the consolidated financial statements.
South Atlantic Canners, Inc. (“SAC”)
The Company is a shareholder of SAC, a manufacturing cooperative in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SAC as an equity method investment. The Company’s investment in SAC, which was classified as other assets in the consolidated balance sheets, was $ i i 8.2 / million as of both December 29, 2019 and December 30, 2018.
The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC were $ i 9.1 million in 2019, $ i 9.0 million in 2018 and $ i 9.1 million in 2017.
Coca‑Cola Bottlers’ Sales & Services Company, LLC (“CCBSS”)
Along with other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material.
CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $ i 10.0 million on December 29, 2019 and $ i 10.4 million on December 30, 2018, which were classified as accounts receivable, other in the consolidated balance sheets.
In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $ i 2.3 million in 2019, $ i 2.8 million in 2018 and $ i 2.3 million in 2017, which were classified as SD&A expenses in the consolidated statements of operations.
CONA Services LLC (“CONA”)
The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. The Company accounts for CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the consolidated balance sheets, was $ i 10.5 million as of December 29, 2019 and $ i 8.0 million as of December 30, 2018.
Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred CONA service fees of $ i 22.2 million in 2019, $ i 21.5 million in 2018 and $ i 12.6 million in 2017.
Related Party Leases
The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, is the majority stockholder and Morgan H. Everett, Senior Vice President and a director of the Company, is a minority stockholder. The annual base rent the Company is obligated to pay under this lease agreement is subject to adjustment for increases in the Consumer Price Index (the “CPI”) and the lease expires on i December 31, 2021. The principal balance outstanding under this lease was $ i 6.8 million on December 29, 2019 and $ i 9.9 million on December 30, 2018.
i
The minimum and contingent rental payments related to this lease were as follows:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Minimum rental payments |
|
$ |
i 3,510 |
|
|
$ |
i 3,511 |
|
|
$ |
i 3,509 |
|
|
Contingent rental payments |
|
|
i 1,015 |
|
|
|
i 927 |
|
|
|
i 877 |
|
|
Total rental payments |
|
$ |
i 4,525 |
|
|
$ |
i 4,438 |
|
|
$ |
i 4,386 |
|
56
The contingent rental payments in 2019, 2018 and 2017 were a result of changes in the CPI. Increases or decreases in lease payments that result from changes in the CPI were recorded as adjustments to interest expense, net on the Company’s consolidated statements of operations.
Subsequent to the end of the fiscal year, the Company entered into a lease agreement with Beacon Investment Corporation to continue to lease its headquarters office facility and an adjacent office facility in Charlotte, North Carolina. The new lease expires on i December 31, 2029 and is not subject to adjustment for increases in the CPI. See Note 10 for additional information.
The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which is directly and indirectly owned by trusts of which J. Frank Harrison, III, and Sue Anne H. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett is a permissible, discretionary beneficiary. The annual base rent the Company is obligated to pay under this lease agreement is subject to an adjustment for an inflation factor and the lease expires on i December 31, 2020.
The principal balance outstanding under this lease was $ i 4.3 million on December 29, 2019 and $ i 8.1 million on December 30, 2018. The annual base rent the Company is obligated to pay under the lease is subject to an adjustment for an inflation factor. Rental payments related to this lease were $ i 4.4 million in 2019, $ i 4.2 million in 2018 and $ i 4.1 million in 2017.
i
|
4. |
Revenue Recognition |
The Company offers a range of nonalcoholic beverage products and flavors designed to meet the demands of its consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.
The Company’s products are sold and distributed in the United States through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. The Company typically collects payment from customers i within 30 days from the date of sale.
The Company’s sales are divided into i two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, “post‑mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.
The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately i 96% of the Company’s net sales in 2019, i 97% of the Company’s net sales in 2018 and i 97% of the Company’s net sales in 2017. Substantially all of the Company’s revenue is recognized at a point in time and is included in the Nonalcoholic Beverages segment.
Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month. Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the Company’s consolidated financial statements.
/
57
i
The following table represents a disaggregation of revenue from contracts with customers:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Point in time net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages - point in time |
|
$ |
i 4,649,037 |
|
|
$ |
i 4,467,945 |
|
|
$ |
i 4,169,910 |
|
|
Total point in time net sales |
|
|
i 4,649,037 |
|
|
|
i 4,467,945 |
|
|
|
i 4,169,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over time net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages - over time |
|
|
i 45,391 |
|
|
|
i 44,373 |
|
|
|
i 37,017 |
|
|
All Other - over time |
|
|
i 132,121 |
|
|
|
i 113,046 |
|
|
|
i 80,661 |
|
|
Total over time net sales |
|
|
i 177,512 |
|
|
|
i 157,419 |
|
|
|
i 117,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 4,826,549 |
|
|
$ |
i 4,625,364 |
|
|
$ |
i 4,287,588 |
|
/
The Company participates in various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels. The cost of these various sales incentives is not considered a separate performance obligation and is included as a deduction to net sales.
Allowance payments made to customers can be conditional on the achievement of volume targets and/or marketing commitments. Payments made in advance are recorded as prepayments and amortized in the consolidated statements of operations over the relevant period for which the customer commitment is made. In the event there is no separate identifiable benefit or the fair value of such benefit cannot be established, the amortization of the prepayment is included as a reduction to net sales.
The Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectibility of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.
The nature of the Company’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the expected value method, which estimates the net price to the customer based on the customer’s expected annual sales volume projections.
The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than i 1% of bottle/can sales and post-mix sales could be at risk for return by customers. The Company’s reserve for customer returns, which was classified as allowance for doubtful accounts in the consolidated balance sheets, was $ i 3.6 million as of December 29, 2019 and $ i 2.3 million as of December 30, 2018. Returned product is recognized as a reduction of net sales.
i
|
5. |
Segments |
The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM.
58
The Company believes i three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations. The additional i two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.” i The Company’s segment results are as follows:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
|
$ |
i 4,694,428 |
|
|
$ |
i 4,512,318 |
|
|
$ |
i 4,206,927 |
|
|
All Other |
|
|
i 345,005 |
|
|
|
i 358,625 |
|
|
|
i 301,801 |
|
|
Eliminations(1) |
|
|
( i 212,884 |
) |
|
|
( i 245,579 |
) |
|
|
( i 221,140 |
) |
|
Consolidated net sales |
|
$ |
i 4,826,549 |
|
|
$ |
i 4,625,364 |
|
|
$ |
i 4,287,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
|
$ |
i 174,133 |
|
|
$ |
i 45,519 |
|
|
$ |
i 90,143 |
|
|
All Other |
|
|
i 6,621 |
|
|
|
i 12,383 |
|
|
|
i 11,404 |
|
|
Consolidated income from operations |
|
$ |
i 180,754 |
|
|
$ |
i 57,902 |
|
|
$ |
i 101,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
|
$ |
i 169,879 |
|
|
$ |
i 177,448 |
|
|
$ |
i 160,524 |
|
|
All Other |
|
|
i 10,037 |
|
|
|
i 9,808 |
|
|
|
i 8,317 |
|
|
Consolidated depreciation and amortization |
|
$ |
i 179,916 |
|
|
$ |
i 187,256 |
|
|
$ |
i 168,841 |
|
|
(1) |
The entire net sales elimination for each period presented represents net sales from All Other to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction. |
i
|
6. |
Net Income (Loss) Per Share |
i
The following table sets forth the computation of basic net income (loss) per share and diluted net income (loss) per share under the two-class method. See Note 1 for additional information related to net income (loss) per share.
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands, except per share data) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Numerator for basic and diluted net income (loss) per Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
$ |
i 11,375 |
|
|
$ |
( i 19,930 |
) |
|
$ |
i 96,535 |
|
|
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
i 7,141 |
|
|
|
i 7,141 |
|
|
|
i 7,141 |
|
|
Class B Common Stock |
|
|
i 2,228 |
|
|
|
i 2,212 |
|
|
|
i 2,187 |
|
|
Total undistributed earnings (losses) |
|
$ |
i 2,006 |
|
|
$ |
( i 29,283 |
) |
|
$ |
i 87,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings (losses) – basic |
|
$ |
i 1,529 |
|
|
$ |
( i 22,365 |
) |
|
$ |
i 66,754 |
|
|
Class B Common Stock undistributed earnings (losses) – basic |
|
|
i 477 |
|
|
|
( i 6,918 |
) |
|
|
i 20,453 |
|
|
Total undistributed earnings (losses) – basic |
|
$ |
i 2,006 |
|
|
$ |
( i 29,283 |
) |
|
$ |
i 87,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings (losses) – diluted |
|
$ |
i 1,521 |
|
|
$ |
( i 22,365 |
) |
|
$ |
i 66,469 |
|
|
Class B Common Stock undistributed earnings (losses) – diluted |
|
|
i 485 |
|
|
|
( i 6,918 |
) |
|
|
i 20,738 |
|
|
Total undistributed earnings (losses) – diluted |
|
$ |
i 2,006 |
|
|
$ |
( i 29,283 |
) |
|
$ |
i 87,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income (loss) per Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
|
$ |
7,141 |
|
|
$ |
7,141 |
|
|
$ |
7,141 |
|
|
Common Stock undistributed earnings (losses) – basic |
|
|
1,529 |
|
|
|
(22,365 |
) |
|
|
66,754 |
|
|
Numerator for basic net income (loss) per Common Stock share |
|
$ |
i 8,670 |
|
|
$ |
( i 15,224 |
) |
|
$ |
i 73,895 |
|
/ /
59
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands, except per share data) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Numerator for basic net income (loss) per Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
|
$ |
2,228 |
|
|
$ |
2,212 |
|
|
$ |
2,187 |
|
|
Class B Common Stock undistributed earnings (losses) – basic |
|
|
477 |
|
|
|
(6,918 |
) |
|
|
20,453 |
|
|
Numerator for basic net income (loss) per Class B Common Stock share |
|
$ |
i 2,705 |
|
|
$ |
( i 4,706 |
) |
|
$ |
i 22,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income (loss) per Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
|
$ |
7,141 |
|
|
$ |
7,141 |
|
|
$ |
7,141 |
|
|
Dividends on Class B Common Stock assumed converted to Common Stock |
|
|
2,228 |
|
|
|
2,212 |
|
|
|
2,187 |
|
|
Common Stock undistributed earnings (losses) – diluted |
|
|
2,006 |
|
|
|
(29,283 |
) |
|
|
87,207 |
|
|
Numerator for diluted net income (loss) per Common Stock share |
|
$ |
i 11,375 |
|
|
$ |
( i 19,930 |
) |
|
$ |
i 96,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income (loss) per Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
|
$ |
2,228 |
|
|
$ |
2,212 |
|
|
$ |
2,187 |
|
|
Class B Common Stock undistributed earnings (losses) – diluted |
|
|
485 |
|
|
|
(6,918 |
) |
|
|
20,738 |
|
|
Numerator for diluted net income (loss) per Class B Common Stock share |
|
$ |
i 2,713 |
|
|
$ |
( i 4,706 |
) |
|
$ |
i 22,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income (loss) per Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock weighted average shares outstanding – basic |
|
|
i 7,141 |
|
|
|
i 7,141 |
|
|
|
i 7,141 |
|
|
Class B Common Stock weighted average shares outstanding – basic |
|
|
i 2,229 |
|
|
|
i 2,209 |
|
|
|
i 2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income (loss) per Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock) |
|
|
i 9,417 |
|
|
|
i 9,350 |
|
|
|
i 9,369 |
|
|
Class B Common Stock weighted average shares outstanding – diluted |
|
|
i 2,276 |
|
|
|
i 2,209 |
|
|
|
i 2,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
i 1.21 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.35 |
|
|
Class B Common Stock |
|
$ |
i 1.21 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
i 1.21 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.30 |
|
|
Class B Common Stock |
|
$ |
i 1.19 |
|
|
$ |
( i 2.13 |
) |
|
$ |
i 10.29 |
|
NOTES TO TABLE
|
(1) |
For purposes of the diluted net income (loss) per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, i i i 100 / / % of undistributed earnings (losses) is allocated to Common Stock. |
|
(2) |
For purposes of the diluted net income (loss) per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted. |
|
(3) |
For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock included the dilutive effect of shares relative to the Long-Term Performance Equity Plan and the Performance Unit Award Agreement. For periods presented during which the Company has net loss, the unvested performance units granted pursuant to the Long-Term Performance Equity Plan and the Performance Unit Award Agreement are excluded from the calculation of diluted net loss per share, as the effect of these awards would be anti-dilutive. See Note 23 for additional information on the Long-Term Performance Equity Plan and the Performance Unit Award Agreement. |
|
(4) |
The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award are prospectively removed from the denominator for the calculation of diluted net income (loss) per share. |
|
(5) |
The Company did i i i no / / t have anti-dilutive shares for any periods presented. |
60
i
|
7. |
Inventories |
i
Inventories consisted of the following:
|
(in thousands) |
|
|
|
|
||||
|
Finished products |
|
$ |
i 142,363 |
|
|
$ |
i 135,561 |
|
|
Manufacturing materials |
|
|
i 45,267 |
|
|
|
i 39,840 |
|
|
Plastic shells, plastic pallets and other inventories |
|
|
i 38,296 |
|
|
|
i 34,632 |
|
|
Total inventories |
|
$ |
i 225,926 |
|
|
$ |
i 210,033 |
|
/ i
8.Prepaid Expenses and Other Current Assets
i
Prepaid expenses and other current assets consisted of the following:
|
(in thousands) |
|
|
|
|
||||
|
Repair parts |
|
$ |
i 28,967 |
|
|
$ |
i 26,846 |
|
|
Prepayments for sponsorship contracts |
|
|
i 8,696 |
|
|
|
i 7,557 |
|
|
Current portion of income taxes |
|
|
i 4,359 |
|
|
|
i 6,637 |
|
|
Prepaid software |
|
|
i 5,850 |
|
|
|
i 6,553 |
|
|
Prepaid marketing |
|
|
i 5,658 |
|
|
|
i 6,097 |
|
|
Other prepaid expenses and other current assets |
|
|
i 15,931 |
|
|
|
i 16,990 |
|
|
Total prepaid expenses and other current assets |
|
$ |
i 69,461 |
|
|
$ |
i 70,680 |
|
/ i
|
9. |
Property, Plant and Equipment, Net |
The principal categories and estimated useful lives of property, plant and equipment, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Estimated Useful Lives |
||||
|
Land |
|
$ |
i 76,860 |
|
|
$ |
i 78,242 |
|
|
|
|
Buildings |
|
|
i 223,500 |
|
|
|
i 218,846 |
|
|
i 8- i 50 years |
|
Machinery and equipment |
|
|
i 355,575 |
|
|
|
i 328,034 |
|
|
i 5- i 20 years |
|
Transportation equipment |
|
|
i 417,532 |
|
|
|
i 372,895 |
|
|
i 4- i 20 years |
|
Furniture and fixtures |
|
|
i 92,059 |
|
|
|
i 89,439 |
|
|
i 3- i 10 years |
|
Cold drink dispensing equipment |
|
|
i 489,050 |
|
|
|
i 491,161 |
|
|
i 5- i 17 years |
|
Leasehold and land improvements |
|
|
i 145,341 |
|
|
|
i 132,837 |
|
|
i 5- i 20 years |
|
Software for internal use |
|
|
i 128,792 |
|
|
|
i 122,604 |
|
|
i 3- i 10 years |
|
Construction in progress |
|
|
i 29,369 |
|
|
|
i 15,142 |
|
|
|
|
Total property, plant and equipment, at cost |
|
|
i 1,958,078 |
|
|
|
i 1,849,200 |
|
|
|
|
Less: Accumulated depreciation and amortization |
|
|
i 960,675 |
|
|
|
i 858,668 |
|
|
|
|
Property, plant and equipment, net |
|
$ |
i 997,403 |
|
|
$ |
i 990,532 |
|
|
|
/
During 2019, 2018 and 2017, the Company performed periodic reviews of property, plant and equipment and determined i i i no / / material impairment existed.
/ i
10.Leases
The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company adopted the lease standard using the optional transition method on December 31, 2018, the transition date, and elected to adopt the following practical expedients as accounting policy upon initial adoption of the lease standard:
61
|
• |
Short-term lease exception: i Allows the Company to not recognize leases with a contractual term of less than 12 months on the balance sheet. |
|
• |
Election to not separate non-lease components: Allows the Company to not separate lease and non-lease components and to account for both components as a single component, recognized on its consolidated balance sheets. |
|
• |
Package of practical expedients for transition: Allows the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) any initial direct costs for any existing leases as of the transition date. |
|
• |
Additional transition method/relief: Allows the Company to apply the transition requirements in the lease standard as of the transition date, with any impact of initially applying the lease standard recognized as a cumulative effect adjustment to retained earnings in the period of adoption. This also requires the Company to maintain previous disclosure requirements for comparative periods. |
Upon adoption of the lease standard on December 31, 2018, the Company recorded right of use assets for operating leases of $ i 88.0 million and associated lease liabilities of $ i 88.2 million. The adoption of the lease standard did not change previously reported consolidated statements of operations, did not result in a cumulative effect adjustment to retained earnings in the period of adoption and did not impact cash flows.
The Company used the following policies and assumptions to evaluate its population of leases:
|
• |
Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right of use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term. |
|
• |
Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable. |
|
• |
Discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate. |
|
• |
Lease term: The Company does not recognize leases with a contractual term of less than 12 months on its consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term. |
|
• |
Rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the CPI or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement. |
|
• |
Renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right of use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right of use asset and the associated lease liability. |
|
• |
Option to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract. |
|
• |
Residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants. |
i
Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases as of December 29, 2019:
|
|
|
Operating Leases |
|
Financing Leases |
|
||
|
Weighted average remaining lease term |
|
i 10.2 years |
|
i 4.8 years |
|
||
|
Weighted average discount rate |
|
|
i 4.1 |
% |
|
i 5.7 |
% |
As of December 29, 2019, the Company had one real estate lease commitment that had not yet commenced. The Company entered into a lease agreement, effective January 1, 2020, with Beacon Investment Corporation to continue to lease its headquarters office facility and an adjacent office facility in Charlotte, North Carolina. The new lease has a i 10-year term and expires on i December 31, 2029. This lease will be classified as an operating lease and the additional lease liability associated with this lease commitment is
62
expected to be $ i 40.2 million. This lease replaces the previous lease agreement, that was classified as a financing lease obligation, was scheduled to expire on i December 31, 2021 and had a $ i 6.8 million principal balance outstanding as of December 29, 2019.
i
Following is a summary of balances related to the Company’s lease portfolio within the Company’s consolidated statement of operations:
|
(in thousands) |
|
2019 |
|
|
|
Cost of sales impact: |
|
|
|
|
|
Operating lease costs |
|
$ |
i 5,396 |
|
|
Short-term and variable leases |
|
|
i 10,267 |
|
|
Depreciation expense from financing leases(1) |
|
|
i 1,414 |
|
|
Total cost of sales impact |
|
$ |
i 17,077 |
|
|
|
|
|
|
|
|
Selling, delivery and administrative expenses impact: |
|
|
|
|
|
Operating lease costs |
|
$ |
i 13,424 |
|
|
Short-term and variable leases |
|
|
i 3,338 |
|
|
Depreciation expense from financing leases(1) |
|
|
i 4,553 |
|
|
Total selling, delivery and administrative expenses impact |
|
$ |
i 21,315 |
|
|
|
|
|
|
|
|
Interest expense, net impact: |
|
|
|
|
|
Interest expense on financing lease obligations(2) |
|
$ |
i 2,714 |
|
|
Total interest expense, net impact |
|
$ |
i 2,714 |
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
i 41,106 |
|
|
(1) |
During both 2018 and 2017, the Company had depreciation expense from capital leases of $ i i 1.4 / million and $ i i 4.5 / million in cost of sales and SD&A expenses, respectively. |
|
(2) |
The Company had interest expense on capital lease obligations of $ i 3.3 million during 2018 and $ i 3.9 million during 2017. |
i
The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably assured and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019:
|
(in thousands) |
|
Operating Leases |
|
|
Financing Leases |
|
|
Total |
|
|||
|
2020 |
|
$ |
i 19,236 |
|
|
$ |
i 10,611 |
|
|
$ |
i 29,847 |
|
|
2021 |
|
|
i 16,815 |
|
|
|
i 6,215 |
|
|
|
i 23,030 |
|
|
2022 |
|
|
i 14,016 |
|
|
|
i 2,694 |
|
|
|
i 16,710 |
|
|
2023 |
|
|
i 11,704 |
|
|
|
i 2,750 |
|
|
|
i 14,454 |
|
|
2024 |
|
|
i 10,989 |
|
|
|
i 2,808 |
|
|
|
i 13,797 |
|
|
Thereafter |
|
|
i 67,556 |
|
|
|
i 5,406 |
|
|
|
i 72,962 |
|
|
Total minimum lease payments including interest |
|
$ |
i 140,316 |
|
|
$ |
i 30,484 |
|
|
$ |
i 170,800 |
|
|
Less: Amounts representing interest |
|
|
i 27,527 |
|
|
|
i 3,678 |
|
|
|
i 31,205 |
|
|
Present value of minimum lease principal payments |
|
|
i 112,789 |
|
|
|
i 26,806 |
|
|
|
i 139,595 |
|
|
Less: Current portion of lease liabilities - operating and financing leases |
|
|
i 15,024 |
|
|
|
i 9,403 |
|
|
|
i 24,427 |
|
|
Noncurrent portion of lease liabilities - operating and financing leases |
|
$ |
i 97,765 |
|
|
$ |
i 17,403 |
|
|
$ |
i 115,168 |
|
63
i
Following is a summary of future minimum lease payments for all noncancelable operating leases and capital leases as of December 30, 2018:
|
(in thousands) |
|
Operating Leases |
|
|
Capital Leases |
|
|
Total |
|
|||
|
2019 |
|
$ |
i 14,146 |
|
|
$ |
i 10,434 |
|
|
$ |
i 24,580 |
|
|
2020 |
|
|
i 13,526 |
|
|
|
i 10,613 |
|
|
|
i 24,139 |
|
|
2021 |
|
|
i 12,568 |
|
|
|
i 6,218 |
|
|
|
i 18,786 |
|
|
2022 |
|
|
i 11,161 |
|
|
|
i 2,697 |
|
|
|
i 13,858 |
|
|
2023 |
|
|
i 10,055 |
|
|
|
i 2,753 |
|
|
|
i 12,808 |
|
|
Thereafter |
|
|
i 33,805 |
|
|
|
i 8,106 |
|
|
|
i 41,911 |
|
|
Total minimum lease payments including interest |
|
$ |
i 95,261 |
|
|
$ |
i 40,821 |
|
|
$ |
i 136,082 |
|
|
Less: Amounts representing interest |
|
|
|
|
|
|
i 5,573 |
|
|
|
|
|
|
Present value of minimum lease principal payments |
|
|
|
|
|
|
i 35,248 |
|
|
|
|
|
|
Less: Current portion of lease liabilities - capital leases |
|
|
|
|
|
|
i 8,617 |
|
|
|
|
|
|
Noncurrent portion of lease liabilities - capital leases |
|
|
|
|
|
$ |
i 26,631 |
|
|
|
|
|
i
Following is a summary of balances related to the Company’s lease portfolio within the Company’s consolidated statement of cash flows:
|
(in thousands) |
|
2019 |
|
|
|
Cash flows from operating activities impact: |
|
|
|
|
|
Operating leases |
|
$ |
i 18,138 |
|
|
Interest payments on financing lease obligations(1) |
|
|
i 2,714 |
|
|
Total cash flows from operating activities impact |
|
$ |
i 20,852 |
|
|
|
|
|
|
|
|
Cash flows from financing activities impact: |
|
|
|
|
|
Principal payments on financing lease obligations(1) |
|
$ |
i 8,656 |
|
|
Total cash flows from financing activities impact |
|
$ |
i 8,656 |
|
|
(1) |
During 2018, the Company had principal payments on capital lease obligations of $ i 8.1 million and interest payments on capital lease obligations of $ i 3.3 million. During 2017, the Company had principal payments on capital lease obligations of $ i 7.7 million and interest payments on capital lease obligations of $ i 3.9 million. |
i
|
11. |
Goodwill |
i
A reconciliation of the activity for goodwill in 2019 and 2018 is as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Beginning balance - goodwill |
|
$ |
i 165,903 |
|
|
$ |
i 169,316 |
|
|
Measurement period adjustments(1) |
|
|
i - |
|
|
|
( i 3,413 |
) |
|
Ending balance - goodwill |
|
$ |
i 165,903 |
|
|
$ |
i 165,903 |
|
|
(1) |
Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018. |
/
The Company’s goodwill resides entirely within the Nonalcoholic Beverages segment. The Company performed its annual impairment test of goodwill as of the first day of the fourth quarter during both 2019 and 2018 and determined there was i i no / impairment of the carrying value of these assets.
/
64
i
|
12. |
Distribution Agreements, Net |
i
Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of i 10 to i 40 years, consisted of the following:
|
(in thousands) |
|
|
|
|
||||
|
Distribution agreements at cost |
|
$ |
i 950,549 |
|
|
$ |
i 950,559 |
|
|
Less: Accumulated amortization |
|
|
i 74,453 |
|
|
|
i 50,176 |
|
|
Distribution agreements, net |
|
$ |
i 876,096 |
|
|
$ |
i 900,383 |
|
/ i
A reconciliation of the activity for distribution agreements, net in 2019 and 2018 is as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Beginning balance - distribution agreements, net |
|
$ |
i 900,383 |
|
|
$ |
i 913,352 |
|
|
Other distribution agreements |
|
|
( i 10 |
) |
|
|
i 6,332 |
|
|
Measurement period adjustments(1) |
|
|
- |
|
|
|
i 4,700 |
|
|
Additional accumulated amortization |
|
|
( i 24,277 |
) |
|
|
( i 24,001 |
) |
|
Ending balance - distribution agreements, net |
|
$ |
i 876,096 |
|
|
$ |
i 900,383 |
|
|
(1) |
Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018. The adjustments to amortization expense associated with these measurement period adjustments were not material to the consolidated financial statements. |
Assuming i no impairment of distribution agreements, net, amortization expense in future years based upon recorded amounts as of December 29, 2019 will be $ i i i i i 24.3 / / / / million for each fiscal year 2020 through 2024.
/ i
|
13. |
Customer Lists and Other Identifiable Intangible Assets, Net |
Customer lists and other identifiable intangible assets, net, which are amortized on a straight-line basis and have an estimated useful life of i five to i 12 years, consisted of the following:
|
(in thousands) |
|
|
|
|
||||
|
Customer lists and other identifiable intangible assets at cost |
|
$ |
i 25,288 |
|
|
$ |
i 25,288 |
|
|
Less: Accumulated amortization |
|
|
i 10,645 |
|
|
|
i 8,806 |
|
|
Customer lists and other identifiable intangible assets, net |
|
$ |
i 14,643 |
|
|
$ |
i 16,482 |
|
/
Assuming i no impairment of customer lists and other identifiable intangible assets, net, amortization expense in future years based upon recorded amounts as of December 29, 2019 will be approximately $ i i i i i 1.8 / / / / million for each fiscal year 2020 through 2024.
/
65
i
|
14. |
Other Accrued Liabilities |
i
Other accrued liabilities consisted of the following:
|
(in thousands) |
|
|
|
|
||||
|
Accrued insurance costs |
|
$ |
i 44,584 |
|
|
$ |
i 37,916 |
|
|
Current portion of acquisition related contingent consideration |
|
|
i 41,087 |
|
|
|
i 32,993 |
|
|
Accrued marketing costs |
|
|
i 34,947 |
|
|
|
i 31,475 |
|
|
Employee and retiree benefit plan accruals |
|
|
i 33,699 |
|
|
|
i 29,300 |
|
|
Checks and transfers yet to be presented for payment from zero balance cash accounts |
|
|
i 20,199 |
|
|
|
i 72,701 |
|
|
Accrued taxes (other than income taxes) |
|
|
i 6,366 |
|
|
|
i 4,577 |
|
|
Current deferred proceeds from Territory Conversion Fee |
|
|
i 2,286 |
|
|
|
i 2,286 |
|
|
Federal income taxes |
|
|
i 1,651 |
|
|
|
- |
|
|
Commodity hedges at fair market value |
|
|
i 1,174 |
|
|
|
i 10,305 |
|
|
All other accrued expenses |
|
|
i 22,841 |
|
|
|
i 28,693 |
|
|
Total other accrued liabilities |
|
$ |
i 208,834 |
|
|
$ |
i 250,246 |
|
/ i
|
15. |
Derivative Financial Instruments |
The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.
The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.
i
The following table summarizes pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the consolidated statements of operations:
|
|
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
Classification of Gain (Loss) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Commodity hedges |
|
Cost of sales |
|
$ |
i 6,602 |
|
|
$ |
( i 10,376 |
) |
|
$ |
i 2,815 |
|
|
Commodity hedges |
|
Selling, delivery and administrative expenses |
|
|
i 3,536 |
|
|
|
( i 4,349 |
) |
|
|
i 315 |
|
|
Total gain (loss) |
|
|
|
$ |
i 10,138 |
|
|
$ |
( i 14,725 |
) |
|
$ |
i 3,130 |
|
/ i
The following table summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by the Company:
|
(in thousands) |
|
Balance Sheet Classification |
|
|
|
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Commodity hedges at fair market value |
|
Prepaid expenses and other current assets |
|
$ |
i 1,007 |
|
|
$ |
- |
|
|
Total assets |
|
|
|
$ |
i 1,007 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Commodity hedges at fair market value |
|
Other accrued liabilities |
|
$ |
i 1,174 |
|
|
$ |
i 10,305 |
|
|
Total liabilities |
|
|
|
$ |
i 1,174 |
|
|
$ |
i 10,305 |
|
The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the Company’s consolidated balance sheets and the net amounts of derivative liabilities are recognized in other
/66
accrued liabilities or other liabilities in the consolidated balance sheets. i The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the consolidated balance sheets:
|
(in thousands) |
|
|
|
|
||||
|
Gross derivative assets |
|
$ |
i 3,298 |
|
|
$ |
i 28,305 |
|
|
Gross derivative liabilities |
|
|
i 3,465 |
|
|
|
i 38,610 |
|
The following table summarizes the Company’s outstanding commodity derivative agreements:
|
(in thousands) |
|
|
|
|
||||
|
Notional amount of outstanding commodity derivative agreements |
|
$ |
i 171,699 |
|
|
$ |
i 168,388 |
|
|
Latest maturity date of outstanding commodity derivative agreements |
|
i December 2020 |
|
|
i December 2019 |
|
||
i
|
16. |
Fair Values of Financial Instruments |
GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories:
|
|
• |
Level 1: Quoted market prices in active markets for identical assets or liabilities. |
|
|
• |
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. |
|
|
• |
Level 3: Unobservable inputs that are not corroborated by market data. |
The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were i i i i i i i i i i i i i i i i i i no / / / / / / / / / / / / / / / / / transfers of assets or liabilities between levels in any period presented.
|
Financial Instrument |
|
Fair Value Level |
|
Method and Assumptions |
|
Deferred compensation plan assets and liabilities |
|
Level 1 |
|
The fair value of the Company’s non-qualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market value of the securities held within the mutual funds. |
|
Pension plan assets held in trust funds |
|
Level 1 |
|
The fair value of the Company’s pension plan assets held in trust funds is based on the fair values of the underlying investments, which are actively managed equity securities and fixed income investment vehicles that are valued at the net asset value per share multiplied by the number of shares held. |
|
Commodity hedging agreements |
|
Level 2 |
|
The fair values of the Company’s commodity hedging agreements are based on current settlement values at each balance sheet date. The fair values of the commodity hedging agreements at each balance sheet date represent the estimated amounts the Company would have received or paid upon termination of these agreements. The Company’s credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair value of derivative financial instruments. |
|
Non-public variable rate debt |
|
Level 2 |
|
The carrying amounts of the Company’s non-public variable rate debt approximate their fair values due to variable interest rates with short reset periods. |
|
Non-public fixed rate debt |
|
Level 2 |
|
The fair values of the Company’s non-public fixed rate debt are based on estimated current market prices. |
|
Public debt securities |
|
Level 2 |
|
The fair values of the Company’s public debt securities are based on estimated current market prices. |
|
Acquisition related contingent consideration |
|
Level 3 |
|
The fair values of acquisition related contingent consideration are based on internal forecasts and the WACC derived from market data. |
/
67
i
The following tables summarize, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, pension plan assets held in trust funds, commodity hedging agreements, debt and acquisition related contingent consideration:
|
|
|
|
||||||||||||||||||
|
|
|
Carrying |
|
|
Total |
|
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|||||
|
(in thousands) |
|
Amount |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets |
|
$ |
i 42,543 |
|
|
$ |
i 42,543 |
|
|
$ |
i 42,543 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Pension plan assets held in trust funds |
|
|
i 276,085 |
|
|
|
i 276,085 |
|
|
|
i 276,085 |
|
|
|
- |
|
|
|
- |
|
|
Commodity hedging agreements |
|
|
i 1,007 |
|
|
|
i 1,007 |
|
|
|
- |
|
|
|
i 1,007 |
|
|
|
- |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
|
|
i 42,543 |
|
|
|
i 42,543 |
|
|
|
i 42,543 |
|
|
|
- |
|
|
|
- |
|
|
Commodity hedging agreements |
|
|
i 1,174 |
|
|
|
i 1,174 |
|
|
|
- |
|
|
|
i 1,174 |
|
|
|
- |
|
|
Non-public variable rate debt |
|
|
i 307,250 |
|
|
|
i 307,500 |
|
|
|
- |
|
|
|
i 307,500 |
|
|
|
- |
|
|
Non-public fixed rate debt |
|
|
i 374,723 |
|
|
|
i 383,900 |
|
|
|
- |
|
|
|
i 383,900 |
|
|
|
- |
|
|
Public debt securities |
|
|
i 347,947 |
|
|
|
i 367,300 |
|
|
|
- |
|
|
|
i 367,300 |
|
|
|
- |
|
|
Acquisition related contingent consideration |
|
|
i 446,684 |
|
|
|
i 446,684 |
|
|
|
- |
|
|
|
- |
|
|
|
i 446,684 |
|
|
|
|
|
||||||||||||||||||
|
|
|
Carrying |
|
|
Total |
|
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|||||
|
(in thousands) |
|
Amount |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets |
|
$ |
i 33,160 |
|
|
$ |
i 33,160 |
|
|
$ |
i 33,160 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
|
|
i 33,160 |
|
|
|
i 33,160 |
|
|
|
i 33,160 |
|
|
|
- |
|
|
|
- |
|
|
Commodity hedging agreements |
|
|
i 10,305 |
|
|
|
i 10,305 |
|
|
|
- |
|
|
|
i 10,305 |
|
|
|
- |
|
|
Non-public variable rate debt |
|
|
i 372,074 |
|
|
|
i 372,500 |
|
|
|
- |
|
|
|
i 372,500 |
|
|
|
- |
|
|
Non-public fixed rate debt |
|
|
i 274,717 |
|
|
|
i 261,200 |
|
|
|
- |
|
|
|
i 261,200 |
|
|
|
- |
|
|
Public debt securities |
|
|
i 457,612 |
|
|
|
i 455,400 |
|
|
|
- |
|
|
|
i 455,400 |
|
|
|
- |
|
|
Acquisition related contingent consideration |
|
|
i 382,898 |
|
|
|
i 382,898 |
|
|
|
- |
|
|
|
- |
|
|
|
i 382,898 |
|
/
The acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC.
The future expected sub-bottling payments extend through the life of the applicable distribution assets acquired in each System Transformation transaction, which is generally i 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA, and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash income or expense recorded each reporting period.
i
The acquisition related contingent consideration is the Company’s only Level 3 asset or liability. A reconciliation of the Level 3 activity is as follows:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Beginning balance - Level 3 liability |
|
$ |
i 382,898 |
|
|
$ |
i 381,291 |
|
|
Measurement period adjustments(1) |
|
|
- |
|
|
|
i 813 |
|
|
Payment of acquisition related contingent consideration |
|
|
( i 27,182 |
) |
|
|
( i 24,683 |
) |
|
Reclassification to current payables |
|
|
( i 1,820 |
) |
|
|
( i 3,290 |
) |
|
Increase in fair value |
|
|
i 92,788 |
|
|
|
i 28,767 |
|
|
Ending balance - Level 3 liability |
|
$ |
i 446,684 |
|
|
$ |
i 382,898 |
|
/
68
|
(1) |
Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement for distribution territories acquired by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018. |
The increase in the fair value of the acquisition related contingent consideration liability during 2019 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees and a decrease in the discount rate used to calculate fair value. The increase in the fair value of the acquisition related contingent consideration liability during 2018 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees. These fair value adjustments were recorded in other expense, net in the consolidated statements of operations.
The anticipated amount the Company could pay annually under acquisition related contingent consideration arrangements is expected to be in the range of $ i 27 million to $ i 51 million.
i
|
17. |
Income Taxes |
The current income tax provision represents the estimated amount of income taxes paid or payable for the year, as well as changes in estimates from prior years. The deferred income tax provision represents the change in deferred tax liabilities and assets. i The following table presents the significant components of the provision for income taxes:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
i 7,505 |
|
|
$ |
( i 4,228 |
) |
|
$ |
i 12,978 |
|
|
State |
|
|
i 4,173 |
|
|
|
( i 3,269 |
) |
|
|
i 5,292 |
|
|
Total current provision (benefit) |
|
$ |
i 11,678 |
|
|
$ |
( i 7,497 |
) |
|
$ |
i 18,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
i 4,514 |
|
|
$ |
i 5,701 |
|
|
$ |
( i 54,232 |
) |
|
State |
|
|
( i 527 |
) |
|
|
i 3,665 |
|
|
|
( i 3,879 |
) |
|
Total deferred provision (benefit) |
|
$ |
i 3,987 |
|
|
$ |
i 9,366 |
|
|
$ |
( i 58,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
i 15,665 |
|
|
$ |
i 1,869 |
|
|
$ |
( i 39,841 |
) |
The Company’s effective income tax rate, as calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was i 45.8% for 2019, ( i 14.1)% for 2018 and ( i 63.2)% for 2017. i The following table provides a reconciliation of income tax expense (benefit) at the statutory federal rate to actual income tax expense (benefit):
|
|
|
Fiscal Year |
|
|||||||||||||||||||||
|
|
|
2019 |
2018 |
|
|
2017 |
|
|||||||||||||||||
|
(in thousands) |
|
Income tax expense |
|
|
% pre-tax income |
|
|
Income tax expense |
|
|
% pre-tax income |
|
|
Income tax expense |
|
|
% pre-tax income |
|
||||||
|
Statutory (income) / expense |
|
$ |
i 7,187 |
|
|
|
i 21.0 |
% |
|
$ |
( i 2,790 |
) |
|
|
i 21.0 |
% |
|
$ |
i 22,052 |
|
|
|
i 35.0 |
% |
|
Nondeductible compensation |
|
|
i 4,313 |
|
|
|
i 12.6 |
|
|
|
i 2,851 |
|
|
|
( i 21.5 |
) |
|
|
i 230 |
|
|
|
i 0.4 |
|
|
Meals, entertainment and travel expense |
|
|
i 2,440 |
|
|
|
i 7.1 |
|
|
|
i 2,734 |
|
|
|
( i 20.6 |
) |
|
|
i 3,684 |
|
|
|
i 5.8 |
|
|
Noncontrolling interest – Piedmont |
|
|
( i 1,826 |
) |
|
|
( i 5.3 |
) |
|
|
( i 1,238 |
) |
|
|
i 9.3 |
|
|
|
( i 1,692 |
) |
|
|
( i 2.7 |
) |
|
State income taxes, net of federal benefit |
|
|
i 1,352 |
|
|
|
i 4.0 |
|
|
|
( i 376 |
) |
|
|
i 2.8 |
|
|
|
i 2,029 |
|
|
|
i 3.2 |
|
|
Valuation allowance change |
|
|
i 1,290 |
|
|
|
i 3.8 |
|
|
|
i 1,566 |
|
|
|
( i 11.8 |
) |
|
|
i 2,718 |
|
|
|
i 4.3 |
|
|
Nondeductible fees and expenses |
|
|
i 887 |
|
|
|
i 2.6 |
|
|
|
i 568 |
|
|
|
( i 4.3 |
) |
|
|
i 1,151 |
|
|
|
i 1.8 |
|
|
Adjustment for uncertain tax positions |
|
|
( i 805 |
) |
|
|
( i 2.4 |
) |
|
|
i 694 |
|
|
|
( i 5.2 |
) |
|
|
( i 521 |
) |
|
|
( i 0.8 |
) |
|
Adjustment for federal tax legislation |
|
|
- |
|
|
|
- |
|
|
|
( i 1,989 |
) |
|
|
i 15.0 |
|
|
|
( i 69,014 |
) |
|
|
( i 109.5 |
) |
|
Other, net |
|
|
i 827 |
|
|
|
i 2.4 |
|
|
|
( i 151 |
) |
|
|
i 1.2 |
|
|
|
( i 478 |
) |
|
|
( i 0.7 |
) |
|
Income tax expense (benefit) |
|
$ |
i 15,665 |
|
|
|
i 45.8 |
% |
|
$ |
i 1,869 |
|
|
( i 14.1)% |
|
|
$ |
( i 39,841 |
) |
|
( i 63.2)% |
|
||
The Company’s effective income tax rate, as calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was i 57.9% for 2019, ( i 10.3)% for 2018 and ( i 70.3)% for 2017.
/
69
The Tax Act was signed into law in 2017 and significantly reformed the Internal Revenue Code of 1986, as amended, which included reducing the corporate tax rate to i 21% and changing the deductibility of certain expenses. In 2017, the Company recorded an estimated net benefit resulting from its adoption of the Tax Act of $ i 66.6 million to income tax expense (benefit) in its consolidated financial statements and, in 2018, the Company recorded an additional tax benefit of $ i 1.9 million attributable to the re-measurement of its net deferred tax liability in connection with the filing of its 2017 federal income tax return.
The Company records liabilities for uncertain tax positions related to certain income tax positions. These liabilities reflect the Company’s best estimate of the ultimate income tax liability based on currently known facts and information. Material changes in facts or information, as well as the expiration of statute and/or settlements with individual tax jurisdictions, may result in material adjustments to these estimates in the future.
The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense (benefit). During 2019, 2018 and 2017, the interest and penalties related to uncertain tax positions recognized in income tax expense (benefit) were not material. In addition, the amount of interest and penalties accrued at December 29, 2019 and December 30, 2018 were not material.
The Company had uncertain tax positions, including accrued interest of $ i i 2.5 / million on December 29, 2019 and $ i i 3.1 / million on December 30, 2018, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does i not expect such change would have a significant impact on the consolidated financial statements.
i
A reconciliation of uncertain tax positions, excluding accrued interest, is as follows:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Gross uncertain tax positions at the beginning of the year |
|
$ |
i 2,857 |
|
|
$ |
i 2,286 |
|
|
$ |
i 2,679 |
|
|
Increase as a result of tax positions taken in the current period |
|
|
i 60 |
|
|
|
i 571 |
|
|
|
i 966 |
|
|
Reduction as a result of the expiration of the applicable statute of limitations |
|
|
( i 634 |
) |
|
|
- |
|
|
|
( i 1,359 |
) |
|
Gross uncertain tax positions at the end of the year |
|
$ |
i 2,283 |
|
|
$ |
i 2,857 |
|
|
$ |
i 2,286 |
|
70
Deferred income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and liabilities and available net operating loss and tax credit carryforwards. i Temporary differences and carryforwards that comprised deferred income tax assets and liabilities were as follows:
|
(in thousands) |
|
|
|
|
||||
|
Acquisition related contingent consideration |
|
$ |
i 110,036 |
|
|
$ |
i 94,323 |
|
|
Operating lease liabilities |
|
|
i 27,346 |
|
|
|
- |
|
|
Deferred compensation |
|
|
i 26,788 |
|
|
|
i 26,154 |
|
|
Deferred revenue |
|
|
i 24,936 |
|
|
|
i 25,027 |
|
|
Accrued liabilities |
|
|
i 19,266 |
|
|
|
i 18,485 |
|
|
Pension |
|
|
i 14,124 |
|
|
|
i 7,031 |
|
|
Postretirement benefits |
|
|
i 13,250 |
|
|
|
i 13,843 |
|
|
Charitable contribution carryover |
|
|
i 6,622 |
|
|
|
i 5,723 |
|
|
Transactional costs |
|
|
i 4,857 |
|
|
|
i 5,291 |
|
|
Financing or capital lease agreements |
|
|
i 2,432 |
|
|
|
i 2,871 |
|
|
Net operating loss carryforwards |
|
|
i 2,012 |
|
|
|
i 7,628 |
|
|
Other |
|
|
i 3,022 |
|
|
|
i 4,198 |
|
|
Deferred income tax assets |
|
$ |
i 254,691 |
|
|
$ |
i 210,574 |
|
|
Less: Valuation allowance for deferred tax assets |
|
|
i 7,190 |
|
|
|
i 5,899 |
|
|
Net deferred income tax asset |
|
$ |
i 247,501 |
|
|
$ |
i 204,675 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
$ |
( i 151,940 |
) |
|
$ |
( i 154,974 |
) |
|
Depreciation |
|
|
( i 147,140 |
) |
|
|
( i 131,856 |
) |
|
Right of use assets - operating leases |
|
|
( i 26,997 |
) |
|
|
- |
|
|
Investment in Piedmont |
|
|
( i 23,287 |
) |
|
|
( i 24,540 |
) |
|
Inventory |
|
|
( i 12,631 |
) |
|
|
( i 10,553 |
) |
|
Prepaid expenses |
|
|
( i 7,627 |
) |
|
|
( i 8,680 |
) |
|
Patronage dividend |
|
|
( i 3,009 |
) |
|
|
( i 1,246 |
) |
|
Deferred income tax liabilities |
|
$ |
( i 372,631 |
) |
|
$ |
( i 331,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability |
|
$ |
( i 125,130 |
) |
|
$ |
( i 127,174 |
) |
The Company’s deferred income tax assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of such deferred assets and liabilities and new information available to the Company.
Valuation allowances are recognized on deferred tax assets if the Company believes it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized due to the reversal of certain significant temporary differences and anticipated future taxable income from operations.
The valuation allowance of $ i 7.2 million on December 29, 2019 and $ i 5.9 million on December 30, 2018 was established primarily for certain loss carryforwards and deferred compensation. The increase in the valuation allowance as of December 29, 2019 was primarily a result of the deductibility of certain deferred compensation.
As of December 29, 2019, the Company had i no federal net operating losses and $ i 40.1 million of state net operating losses available to reduce future income taxes, which expire in varying amounts through i 2038.
Prior tax years beginning in year i 2002 remain open to examination by the Internal Revenue Service, and various tax years beginning in year i 1998 remain open to examination by certain state tax jurisdictions due to loss carryforwards.
i
|
18. |
Benefit Plans |
Executive Benefit Plans
The Company has i four executive benefit plans: the Supplemental Savings Incentive Plan, the Long-Term Retention Plan, the Officer Retention Plan and the Long-Term Performance Plan.
/
71
Pursuant to the Supplemental Savings Incentive Plan, as amended and restated effective November 1, 2011, eligible participants may elect to defer a portion of their annual salary and bonus. Participants are immediately vested in all deferred contributions they make and become fully vested in Company contributions upon completion of i five years of service, termination of employment due to death or retirement or a change in control. Participant deferrals and Company contributions made in years prior to 2006 are invested in either a fixed benefit option or certain investment funds specified by the Company. Beginning in 2010, the Company may elect at its discretion to match up to i i i 50 / / % of the first i i i 6 / / % of salary, excluding bonuses, deferred by the participant. During 2019, 2018 and 2017, the Company matched i i i 50 / / % of the first 6% of salary, excluding bonuses, deferred by the participant. The Company may also make discretionary contributions to participants’ accounts. i The liability under this plan was as follows:
|
(in thousands) |
|
|
|
|
||||
|
Current liabilities |
|
$ |
i 8,893 |
|
|
$ |
i 8,255 |
|
|
Noncurrent liabilities |
|
|
i 79,921 |
|
|
|
i 73,524 |
|
|
Total liability - Supplemental Savings Incentive Plan |
|
$ |
i 88,814 |
|
|
$ |
i 81,779 |
|
Under the Long-Term Retention Plan, effective March 5, 2014, the Company accrues a defined amount each year for an eligible participant based upon an award schedule. Amounts awarded may earn an investment return based on certain investment funds specified by the Company. Benefits under the Long-Term Retention Plan are i 50% vested until age 51. Beginning at age 51, the vesting percentage increases by i 5% each year until the benefits are fully vested at age 60. Participants receive payments from the plan upon retirement or, in certain instances, upon termination of employment. Payments are made in the form of monthly installments over a period of 10, 15 or i 20 years. i The liability under this plan was as follows:
|
(in thousands) |
|
|
|
|
||||
|
Current liabilities |
|
$ |
i 102 |
|
|
$ |
i 42 |
|
|
Noncurrent liabilities |
|
|
i 3,199 |
|
|
|
i 2,140 |
|
|
Total liability - Long-Term Retention Plan |
|
$ |
i 3,301 |
|
|
$ |
i 2,182 |
|
Under the Officer Retention Plan, as amended and restated effective January 1, 2007, eligible participants may elect to receive an annuity payable in equal monthly installments over a 10-, 15- or i 20-year period commencing at retirement or, in certain instances, upon termination of employment. The benefits under the Officer Retention Plan increase with each year of participation as set forth in an agreement between the participant and the Company. Benefits under the Officer Retention Plan are i 50% vested until age 51. Beginning at age 51, the vesting percentage increases by i 5% each year until the benefits are fully vested at age 60. i The liability under this plan was as follows:
|
(in thousands) |
|
|
|
|
||||
|
Current liabilities |
|
$ |
i 3,267 |
|
|
$ |
i 3,014 |
|
|
Noncurrent liabilities |
|
|
i 41,062 |
|
|
|
i 42,179 |
|
|
Total liability - Officer Retention Plan |
|
$ |
i 44,329 |
|
|
$ |
i 45,193 |
|
Under the Long-Term Performance Plan, as amended and restated effective January 1, 2018, the Compensation Committee establishes dollar amounts to which a participant shall be entitled upon attainment of the applicable performance measures. Bonus awards under the Long-Term Performance Plan are made based on the relative achievement of performance measures in terms of the Company-sponsored objectives or objectives related to the performance of the individual participants or of the subsidiary, division, department, region or function in which the participant is employed. i The liability under this plan was as follows:
|
(in thousands) |
|
|
|
|
||||
|
Current liabilities |
|
$ |
i 7,252 |
|
|
$ |
i 5,234 |
|
|
Noncurrent liabilities |
|
|
i 8,416 |
|
|
|
i 5,244 |
|
|
Total liability - Long-Term Performance Plan |
|
$ |
i 15,668 |
|
|
$ |
i 10,478 |
|
Pension Plans
There are i two Company-sponsored pension plans. The Primary Plan was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The Bargaining Plan is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.
72
Each year, the Company updates its mortality assumptions used in the calculation of its pension liability using The Society of Actuaries’ latest mortality tables. In 2019 and 2018, the mortality table reflected a lower increase in longevity.
i
The following tables set forth pertinent information for the two Company-sponsored pension plans:
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Projected benefit obligation at beginning of year |
|
$ |
i 278,957 |
|
|
$ |
i 303,918 |
|
|
Service cost |
|
|
i 4,853 |
|
|
|
i 5,484 |
|
|
Interest cost |
|
|
i 12,299 |
|
|
|
i 11,350 |
|
|
Actuarial (gain) / loss |
|
|
i 47,651 |
|
|
|
( i 29,692 |
) |
|
Benefits paid |
|
|
( i 11,456 |
) |
|
|
( i 12,103 |
) |
|
Projected benefit obligation at end of year |
|
$ |
i 332,304 |
|
|
$ |
i 278,957 |
|
Changes in Projected Benefit Obligation
The projected benefit obligations and the accumulated benefit obligations for both Company-sponsored pension plans were in excess of plan assets as of December 29, 2019 and December 30, 2018. The accumulated benefit obligation was $ i 332.3 million on December 29, 2019 and $ i 279.0 million on December 30, 2018.
i
Change in Plan Assets
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Fair value of plan assets at beginning of year |
|
$ |
i 256,168 |
|
|
$ |
i 258,513 |
|
|
Actual return on plan assets |
|
|
i 29,549 |
|
|
|
( i 10,242 |
) |
|
Employer contributions |
|
|
i 4,900 |
|
|
|
i 20,000 |
|
|
Benefits paid |
|
|
( i 13,918 |
) |
|
|
( i 12,103 |
) |
|
Fair value of plan assets at end of year |
|
$ |
i 276,699 |
|
|
$ |
i 256,168 |
|
/ i
Funded Status
|
(in thousands) |
|
|
|
|
||||
|
Projected benefit obligation |
|
$ |
( i 332,304 |
) |
|
$ |
( i 278,957 |
) |
|
Plan assets at fair value |
|
|
i 276,699 |
|
|
|
i 256,168 |
|
|
Net funded status |
|
$ |
( i 55,605 |
) |
|
$ |
( i 22,789 |
) |
/ i
Amounts Recognized in the Consolidated Balance Sheets
|
(in thousands) |
|
|
|
|
||||
|
Current liabilities |
|
$ |
- |
|
|
$ |
- |
|
|
Noncurrent liabilities |
|
|
( i 55,605 |
) |
|
|
( i 22,789 |
) |
|
Total liability - pension plans |
|
$ |
( i 55,605 |
) |
|
$ |
( i 22,789 |
) |
/ i
Net Periodic Pension Cost (Benefit)
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Service cost |
|
$ |
i 4,853 |
|
|
$ |
i 5,484 |
|
|
$ |
i 2,553 |
|
|
Interest cost |
|
|
i 12,299 |
|
|
|
i 11,350 |
|
|
|
i 11,938 |
|
|
Expected return on plan assets |
|
|
( i 10,290 |
) |
|
|
( i 15,415 |
) |
|
|
( i 13,597 |
) |
|
Recognized net actuarial loss |
|
|
i 3,688 |
|
|
|
i 3,830 |
|
|
|
i 3,402 |
|
|
Amortization of prior service cost |
|
|
i 22 |
|
|
|
i 25 |
|
|
|
i 28 |
|
|
Net periodic pension cost |
|
$ |
i 10,572 |
|
|
$ |
i 5,274 |
|
|
$ |
i 4,324 |
|
/
73
i
Significant Assumptions
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Projected benefit obligation at the measurement date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - Primary Plan |
|
|
i 3.36 |
% |
|
|
i 4.47 |
% |
|
|
i 3.80 |
% |
|
Discount rate - Bargaining Plan |
|
|
i 3.61 |
% |
|
|
i 4.63 |
% |
|
|
i 3.90 |
% |
|
Weighted average rate of compensation increase |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||
|
Net periodic pension cost for the fiscal year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - Primary Plan |
|
|
i 4.47 |
% |
|
|
i 3.80 |
% |
|
|
i 4.44 |
% |
|
Discount rate - Bargaining Plan |
|
|
i 4.63 |
% |
|
|
i 3.90 |
% |
|
|
i 4.49 |
% |
|
Weighted average expected long-term rate of return of plan assets - Primary Plan(1) |
|
|
i 5.00 |
% |
|
|
i 6.00 |
% |
|
|
i 6.00 |
% |
|
Weighted average expected long-term rate of return of plan assets - Bargaining Plan(1) |
|
|
i 5.25 |
% |
|
|
i 6.00 |
% |
|
|
i 6.00 |
% |
|
Weighted average rate of compensation increase |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||
|
(1) |
The weighted average expected long-term rate of return, which is used in computing net periodic pension cost, reflects an estimate of long-term future returns for the pension plan assets net of expenses. The estimate is primarily a function of the asset classes, equities versus fixed income, in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time. The analysis includes expected long-term inflation and the risk premiums associated with equity investments and fixed income investments. |
The decrease in the discount rates in 2019, as compared to 2018, was the primary driver of actuarial losses in 2019. The increase in the discount rates in 2018, as compared to 2017, was the primary driver of actuarial gains in 2018. The actuarial gains and losses, net of tax, were recorded in other comprehensive loss.
i
Cash Flows
|
(in thousands) |
|
Anticipated Future Pension Benefit Payments for the Fiscal Years |
|
|
|
2020 |
|
$ |
i 12,107 |
|
|
2021 |
|
|
i 12,824 |
|
|
2022 |
|
|
i 13,553 |
|
|
2023 |
|
|
i 14,358 |
|
|
2024 |
|
|
i 15,061 |
|
|
2025 – 2029 |
|
|
i 84,464 |
|
/
Contributions to the two Company-sponsored pension plans are expected to be in the range of $ i 7 million to $ i 12 million in 2020.
Plan Assets
All assets in the Company’s pension plans are invested in institutional investment funds managed by professional investment advisors which hold U.S. equities, international equities and debt securities. The objective of the Company’s investment philosophy is to earn the plans’ targeted rate of return over longer periods without assuming excess investment risk. The weighted average expected long-term rate of return assumption for the pension plan assets, which will be used to compute 2020 net periodic pension costs, is based upon target asset allocation and is determined using forward-looking assumptions in the context of historical returns and volatilities for each asset class. The Company evaluates the rate of return assumption on an annual basis. i The Company’s pension plans target asset allocation for 2020, actual asset allocation at December 29, 2019 and December 30, 2018, and the weighted average expected long-term rate of return by asset category were as follows:
74
|
|
|
Target |
|
|
Percentage of Plan |
|
|
Weighted Average Expected |
|
|||||||
|
|
|
Allocation |
|
|
Assets at Fiscal Year-End |
|
|
Long-Term Rate of Return |
|
|||||||
|
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2020(1) |
|
||||
|
U.S. debt securities |
|
|
i 65 |
% |
|
|
i 57 |
% |
|
|
i 64 |
% |
|
|
i 3.3 |
% |
|
U.S. equity securities |
|
|
i 26 |
% |
|
|
i 24 |
% |
|
|
i 25 |
% |
|
|
i 1.6 |
% |
|
International debt securities |
|
|
i 0 |
% |
|
|
i 8 |
% |
|
|
i 0 |
% |
|
|
i 0.0 |
% |
|
International equity securities |
|
|
i 7 |
% |
|
|
i 9 |
% |
|
|
i 9 |
% |
|
|
i 0.5 |
% |
|
Cash and cash equivalents |
|
|
i 2 |
% |
|
|
i 2 |
% |
|
|
i 2 |
% |
|
|
i 0.1 |
% |
|
Total |
|
|
i 100 |
% |
|
|
i 100 |
% |
|
|
i 100 |
% |
|
|
i 5.5 |
% |
|
(1) |
The weighted average expected long-term rate of return of plan assets is i 5.50% for the Primary Plan and i 6.25% for the Bargaining Plan. |
Debt securities as of December 29, 2019 are comprised of investments in government and corporate bonds with a weighted average maturity of approximately i 14 years and an institutional high yield bond fund with a modified duration of approximately i three years. U.S. equity securities include: (i) large capitalization domestic equity funds as represented by the S&P 500 index, (ii) mid-capitalization domestic equity funds as represented by the Russell Mid Cap Growth and Mid Cap Value indexes, (iii) small-capitalization domestic equity funds as represented by the Russell Small Cap Growth and Value indexes and (iv) alternative investment funds as represented by the HFRX Global index and the MSCI US REIT index. International equity securities include companies from both developed and emerging markets outside the United States. Cash and cash equivalents have a weighted average duration of less than i three months.
i
The following table summarizes the Company’s pension plan assets held in trust funds. The underlying investments held in trust funds are actively managed equity securities and fixed income investment vehicles that are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.
|
(in thousands) |
|
|
|
|
||||
|
Pension plan assets held in trust funds - fixed income |
|
$ |
i 179,153 |
|
|
$ |
i 164,307 |
|
|
Pension plan assets held in trust funds - equity securities |
|
|
i 89,861 |
|
|
|
i 86,107 |
|
|
Pension plan assets held in trust funds - cash equivalents |
|
|
i 7,071 |
|
|
|
i 4,975 |
|
|
Total pension plan assets held in trust funds |
|
$ |
i 276,085 |
|
|
$ |
i 255,389 |
|
/
In addition, the Company had other level 1 pension plan assets related to its equity securities of $ i 0.6 million in 2019 and $ i 0.8 million in 2018. The level 1 assets had quoted market prices in active markets for identical assets available for fair value measurement.
The Company does not have any unobservable inputs (Level 3) pension plan assets.
401(k) Savings Plan
The Company provides a 401(k) Savings Plan for substantially all of its employees who are not part of collective bargaining agreements and for certain employees under collective bargaining agreements. The Company’s matching contribution for employees who are not part of collective bargaining agreements is discretionary, with the option to match contributions for eligible participants up to i i i 5 / / % based on the Company’s financial results. For all years presented, the Company matched the maximum 5% of participants’ contributions. The Company’s matching contributions for employees who are part of collective bargaining agreements are determined in accordance with negotiated formulas for the respective employees. The total expense for the Company’s matching contributions to the 401(k) Savings Plan was $ i 21.7 million in 2019, $ i 21.2 million in 2018 and $ i 18.4 million in 2017.
Postretirement Benefits
The Company provides postretirement benefits for employees meeting specified criteria. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future.
75
The following tables set forth pertinent information for the Company’s postretirement benefit plan:
i
Reconciliation of Activity
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Benefit obligation at beginning of year |
|
$ |
i 64,461 |
|
|
$ |
i 76,665 |
|
|
Service cost |
|
|
i 1,496 |
|
|
|
i 1,854 |
|
|
Interest cost |
|
|
i 2,750 |
|
|
|
i 2,694 |
|
|
Plan participants’ contributions |
|
|
i 750 |
|
|
|
i 776 |
|
|
Actuarial gain |
|
|
( i 4,191 |
) |
|
|
( i 14,552 |
) |
|
Benefits paid |
|
|
( i 3,296 |
) |
|
|
( i 3,042 |
) |
|
Medicare Part D subsidy reimbursement |
|
|
i 86 |
|
|
|
i 66 |
|
|
Benefit obligation at end of year |
|
$ |
i 62,056 |
|
|
$ |
i 64,461 |
|
/ i
Reconciliation of Plan Assets Fair Value
|
|
|
Fiscal Year |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Fair value of plan assets at beginning of year |
|
$ |
i - |
|
|
$ |
i - |
|
|
Employer contributions |
|
|
i 2,460 |
|
|
|
i 2,200 |
|
|
Plan participants’ contributions |
|
|
i 750 |
|
|
|
i 776 |
|
|
Benefits paid |
|
|
( i 3,296 |
) |
|
|
( i 3,042 |
) |
|
Medicare Part D subsidy reimbursement |
|
|
i 86 |
|
|
|
i 66 |
|
|
Fair value of plan assets at end of year |
|
$ |
i - |
|
|
$ |
i - |
|
/ i
Funded Status
|
(in thousands) |
|
|
|
|
||||
|
Current liabilities |
|
$ |
i 2,831 |
|
|
$ |
i 3,219 |
|
|
Noncurrent liabilities |
|
|
i 59,225 |
|
|
|
i 61,242 |
|
|
Total liability - postretirement benefits |
|
$ |
i 62,056 |
|
|
$ |
i 64,461 |
|
/ i
Net Periodic Postretirement Benefit Cost
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Service cost |
|
$ |
i 1,496 |
|
|
$ |
i 1,854 |
|
|
$ |
i 2,232 |
|
|
Interest cost |
|
|
i 2,750 |
|
|
|
i 2,694 |
|
|
|
i 3,636 |
|
|
Recognized net actuarial loss |
|
|
i 730 |
|
|
|
i 1,889 |
|
|
|
i 2,942 |
|
|
Amortization of prior service cost |
|
|
( i 1,293 |
) |
|
|
( i 1,847 |
) |
|
|
( i 2,982 |
) |
|
Net periodic postretirement benefit cost |
|
$ |
i 3,683 |
|
|
$ |
i 4,590 |
|
|
$ |
i 5,828 |
|
/
76
i
Significant Assumptions
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Benefit obligation discount rate at measurement date |
|
|
i 3.32 |
% |
|
|
i 4.41 |
% |
|
|
i 3.72 |
% |
|
Net periodic postretirement benefit cost discount rate for fiscal year |
|
|
i 4.41 |
% |
|
|
i 3.72 |
% |
|
|
i 4.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit expense - Pre-Medicare: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average healthcare cost trend rate |
|
|
i 7.13 |
% |
|
|
i 7.82 |
% |
|
|
i 6.94 |
% |
|
Trend rate graded down to ultimate rate |
|
|
i 4.50 |
% |
|
|
i 4.50 |
% |
|
|
i 4.50 |
% |
|
Ultimate rate year |
|
i 2026 |
|
|
i 2025 |
|
|
i 2025 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit expense - Post-Medicare: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average healthcare cost trend rate |
|
|
i 7.11 |
% |
|
|
i 7.74 |
% |
|
|
i 8.07 |
% |
|
Trend rate graded down to ultimate rate |
|
|
i 4.50 |
% |
|
|
i 4.50 |
% |
|
|
i 4.50 |
% |
|
Ultimate rate year |
|
i 2026 |
|
|
i 2025 |
|
|
i 2025 |
|
|||
/ i
A 1% increase or decrease in the annual healthcare cost trend would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan as follows:
|
(in thousands) |
|
1% Increase |
|
|
1% Decrease |
|
||
|
Postretirement benefit obligation at December 29, 2019 |
|
$ |
i 8,128 |
|
|
$ |
( i 7,123 |
) |
|
Service cost and interest cost in 2019 |
|
|
i 548 |
|
|
|
( i 489 |
) |
/ i
Cash Flows
|
(in thousands) |
|
Anticipated Future Postretirement Benefit Payments Reflecting Expected Future Service |
|
|
|
2020 |
|
$ |
i 2,831 |
|
|
2021 |
|
|
i 3,003 |
|
|
2022 |
|
|
i 3,122 |
|
|
2023 |
|
|
i 3,169 |
|
|
2024 |
|
|
i 3,439 |
|
|
2025 – 2029 |
|
|
i 19,138 |
|
/
Anticipated future postretirement benefit payments are shown net of Medicare Part D subsidy reimbursements, which are not material.
i
A reconciliation of the amounts in accumulated other comprehensive loss not yet recognized as components of net periodic benefit cost is as follows:
|
(in thousands) |
|
|
|
Actuarial Gain (Loss) |
|
|
Reclassification Adjustments |
|
|
|
||||||
|
Pension Plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
( i 119,595 |
) |
|
$ |
( i 30,855 |
) |
|
$ |
i 3,688 |
|
|
$ |
( i 146,762 |
) |
|
Prior service costs |
|
|
( i 48 |
) |
|
|
- |
|
|
|
i 22 |
|
|
|
( i 26 |
) |
|
Postretirement Medical: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
( i 14,658 |
) |
|
|
i 4,192 |
|
|
|
i 730 |
|
|
|
( i 9,736 |
) |
|
Prior service credits |
|
|
i 1,293 |
|
|
|
- |
|
|
|
( i 1,293 |
) |
|
|
- |
|
|
Total within accumulated other comprehensive loss |
|
$ |
( i 133,008 |
) |
|
$ |
( i 26,663 |
) |
|
$ |
i 3,147 |
|
|
$ |
( i 156,524 |
) |
/
77
i
The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic cost during 2020 are as follows:
|
(in thousands) |
|
Pension Plans |
|
|
Postretirement Medical |
|
|
Total |
|
|||
|
Actuarial loss |
|
$ |
i 4,758 |
|
|
$ |
i 350 |
|
|
$ |
i 5,108 |
|
|
Prior service cost |
|
|
i 19 |
|
|
|
- |
|
|
|
i 19 |
|
|
Total expected to be recognized during 2020 |
|
$ |
i 4,777 |
|
|
$ |
i 350 |
|
|
$ |
i 5,127 |
|
/
Multiemployer Pension Plans
Certain employees of the Company whose employment is covered under collective bargaining agreements participate in a multiemployer pension plan, the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund (the “Teamsters Plan”). The Company makes monthly contributions to the Teamsters Plan on behalf of such employees. The collective bargaining agreements covering the Teamsters Plan expire at various times through i 2022. The Company expects these agreements will be re-negotiated.
Participating in the Teamsters Plan involves certain risks in addition to the risks associated with single employer plans, as contributed assets are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the Teamsters Plan, the unfunded obligations of the Teamsters Plan may be borne by the remaining participating employers. If the Company chooses to stop participating in the Teamsters Plan, the Company could be required to pay the Teamsters Plan a withdrawal liability based on the underfunded status of the Teamsters Plan. The Company does not anticipate withdrawing from the Teamsters Plan.
In 2015, the Company increased its contribution rates to the Teamsters Plan, with additional increases occurring annually, as part of a rehabilitation plan, which was incorporated into the renewal of collective bargaining agreements with the unions effective i April 28, 2014 and adopted by the Company as a rehabilitation plan effective i January 1, 2015. This is a result of the Teamsters Plan being certified by its actuary as being in “critical” status for the plan year beginning January 1, 2013.
i The Company’s participation in the Teamsters Plan is outlined in the table below. A red zone represents less than i 80% funding and requires a financial improvement plan (“FIP”) or rehabilitation plan (“RP”). /
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Pension Protection Act Zone Status |
|
i Red |
|
|
i Red |
|
|
i Red |
|
|||
|
FIP or RP pending or implemented |
|
Yes |
|
|
Yes |
|
|
Yes |
|
|||
|
Surcharge imposed |
|
i Yes |
|
|
i Yes |
|
|
i Yes |
|
|||
|
Contribution |
|
$ |
i 987 |
|
|
$ |
i 763 |
|
|
$ |
i 800 |
|
According to the Teamsters Plan’s Form 5500 for both the plan years ending December 30, 2018 and December 31, 2017, the Company was not listed as providing more than i 5% of the total contributions. At the date these financial statements were issued, a Form 5500 was not available for the plan year ending December 29, 2019.
The Company has a liability recorded for withdrawing from a multiemployer pension plan in 2008 and is required to make payments of approximately $ i 1 million to this multiemployer pension plan each year through 2028. As of December 29, 2019, the Company had $ i 6.4 million remaining on this liability.
i
|
19. |
Other Liabilities |
i
Other liabilities consisted of the following:
|
(in thousands) |
|
|
|
|
||||
|
Noncurrent portion of acquisition related contingent consideration |
|
$ |
i 405,597 |
|
|
$ |
i 349,905 |
|
|
Accruals for executive benefit plans |
|
|
i 141,380 |
|
|
|
i 126,103 |
|
|
Noncurrent deferred proceeds from Territory Conversion Fee |
|
|
i 82,877 |
|
|
|
i 85,163 |
|
|
Noncurrent deferred proceeds from Legacy Facilities Credit |
|
|
i 29,569 |
|
|
|
i 30,369 |
|
|
Other |
|
|
i 9,143 |
|
|
|
i 17,595 |
|
|
Total other liabilities |
|
$ |
i 668,566 |
|
|
$ |
i 609,135 |
|
/
78
i
|
20. |
Debt |
Following is a summary of the Company’s debt:
|
(in thousands) |
|
Maturity Date |
|
Interest Rate |
|
|
Interest Paid |
|
Public or Nonpublic |
|
|
|
|
|||||
|
Senior notes(1) |
|
i 4/15/2019 |
|
i 7.00% |
|
|
i Semi-annually |
|
Public |
|
$ |
- |
|
|
$ |
i 110,000 |
|
|
|
Term loan facility(1) |
|
i 6/7/2021 |
|
i Variable |
|
|
i Varies |
|
Nonpublic |
|
|
i 262,500 |
|
|
|
i 292,500 |
|
|
|
Senior notes |
|
i 2/27/2023 |
|
i 3.28% |
|
|
i Semi-annually |
|
Nonpublic |
|
|
i 125,000 |
|
|
|
i 125,000 |
|
|
|
Revolving credit facility(2) |
|
i 6/8/2023 |
|
i Variable |
|
|
i Varies |
|
Nonpublic |
|
|
i 45,000 |
|
|
|
i 80,000 |
|
|
|
Senior notes |
|
i 11/25/2025 |
|
i 3.80% |
|
|
i Semi-annually |
|
Public |
|
|
i 350,000 |
|
|
|
i 350,000 |
|
|
|
Senior notes |
|
i 10/10/2026 |
|
i 3.93% |
|
|
i Quarterly |
|
Nonpublic |
|
|
i 100,000 |
|
|
|
- |
|
|
|
Senior notes |
|
i 3/21/2030 |
|
i 3.96% |
|
|
i Quarterly |
|
Nonpublic |
|
|
i 150,000 |
|
|
|
i 150,000 |
|
|
|
Unamortized discount on senior notes(3) |
|
i 4/15/2019 |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
( i 78 |
) |
|
Unamortized discount on senior notes(3) |
|
i 11/25/2025 |
|
|
|
|
|
|
|
|
|
|
( i 52 |
) |
|
|
( i 61 |
) |
|
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
( i 2,528 |
) |
|
|
( i 2,958 |
) |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
$ |
i 1,029,920 |
|
|
$ |
i 1,104,403 |
|
|
(1) |
The senior notes due in 2019 were refinanced using proceeds from the issuance of the senior notes due in 2026 (as discussed below). The Company intends to refinance principal payments due in the next 12 months under the term loan facility and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next 12 months were classified as noncurrent. |
|
(2) |
The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $ i 500 million, which may be increased at the Company’s option to $ i 750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company. |
|
(3) |
The senior notes due in 2019 were issued at i 98.238% of par and the senior notes due in 2025 were issued at i 99.975% of par. |
The principal maturities of debt outstanding on December 29, 2019 were as follows:
|
(in thousands) |
|
Debt Maturities |
|
|
|
Fiscal 2020 |
|
$ |
i 45,000 |
|
|
Fiscal 2021 |
|
|
i 217,500 |
|
|
Fiscal 2022 |
|
|
- |
|
|
Fiscal 2023 |
|
|
i 170,000 |
|
|
Fiscal 2024 |
|
|
- |
|
|
Thereafter |
|
|
i 600,000 |
|
|
Total debt |
|
$ |
i 1,032,500 |
|
/
The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis.
In April 2019, the Company sold $ i 100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at i 3.93%, payable i quarterly in arrears and will mature on i October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $ i 200 million.
In July 2019, the Company entered into a $ i 100 million fixed rate swap maturing i June 7, 2021, to hedge a portion of the interest rate risk on the Company’s term loan facility. This interest rate swap is designated as a cash flow hedging instrument and is not expected to be material to the consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other loss on the consolidated balance sheets and included in the consolidated statements of comprehensive income.
The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts. The agreements
/79
under which the Company’s nonpublic debt were issued include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreements. The Company was in compliance with these covenants as of December 29, 2019. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources.
All outstanding long-term debt has been issued by the Company and i none has been issued by any of its subsidiaries. There are i no guarantees of the Company’s debt.
i
|
21. |
Commitments and Contingencies |
Manufacturing Cooperatives
The Company is obligated to purchase at least i 80% of its requirements of plastic bottles for certain designated territories from Southeastern. The Company is also obligated to purchase i 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased i 29.4 million cases, i 29.2 million cases and i 29.9 million cases of finished product from SAC in 2019, 2018 and 2017, respectively.
i
The following table summarizes the Company’s purchases from these manufacturing cooperatives:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Purchases from Southeastern |
|
$ |
i 132,328 |
|
|
$ |
i 125,352 |
|
|
$ |
i 108,528 |
|
|
Purchases from SAC |
|
|
i 160,189 |
|
|
|
i 155,583 |
|
|
|
i 148,511 |
|
|
Total purchases from manufacturing cooperatives |
|
$ |
i 292,517 |
|
|
$ |
i 280,935 |
|
|
$ |
i 257,039 |
|
The Company guarantees a portion of SAC’s debt, which expires at various dates through 2024. The amounts guaranteed were $ i 14.7 million on December 29, 2019 and $ i 23.9 million on December 30, 2018. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payments to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitment related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee.
i The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the Company’s consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment was identified and the Company determined it to be other than temporary. i No impairment of the Company’s investment in SAC was identified as of December 29, 2019, and there was i i no / impairment identified in 2019, 2018 or 2017.
Other Commitments and Contingencies
The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $ i i 35.6 / million on both December 29, 2019 and December 30, 2018.
The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of December 29, 2019, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ i 195.4 million.
The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes that the ultimate disposition of these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.
The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the consolidated financial statements.
/
80
i
|
22. |
Risks and Uncertainties |
Approximately i 85% of the Company’s total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which is the sole supplier of these products or of the concentrates or syrups required to manufacture these products. The remaining bottle/can sales volume to retail customers consists of products of other beverage companies. The Company has beverage agreements with The Coca‑Cola Company and other beverage companies under which it has various requirements. Failure to meet the requirements of these beverage agreements could result in the loss of distribution rights for the respective products.
The Company faces concentration risks related to a few customers comprising a large portion of the Company’s annual sales volume and net revenue. i The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales, which are included in the Nonalcoholic Beverages segment, that such volume represents. i No other customer represented greater than 10% of the Company’s total net sales for any years presented. /
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Approximate percent of the Company’s total bottle/can sales volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wal-Mart Stores, Inc. |
|
|
i 19 |
% |
|
|
i 19 |
% |
|
|
i 19 |
% |
|
The Kroger Company |
|
|
i 12 |
% |
|
|
i 11 |
% |
|
|
i 10 |
% |
|
Total approximate percent of the Company’s total bottle/can sales volume |
|
|
i 31 |
% |
|
|
i 30 |
% |
|
|
i 29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate percent of the Company’s total net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wal-Mart Stores, Inc. |
|
|
i 13 |
% |
|
|
i 14 |
% |
|
|
i 13 |
% |
|
The Kroger Company |
|
|
i 8 |
% |
|
|
i 8 |
% |
|
|
i 7 |
% |
|
Total approximate percent of the Company’s total net sales |
|
|
i 21 |
% |
|
|
i 22 |
% |
|
|
i 20 |
% |
The Company purchases all of its aluminum cans from i two domestic suppliers and all of its plastic bottles from i two manufacturing cooperatives. See Note 3 and Note 21 for additional information.
The Company is exposed to price risk on commodities such as aluminum, corn and resin which affects the cost of raw materials used in the production of finished products. The Company both produces and procures these finished products. Examples of the raw materials affected are aluminum cans and plastic bottles used for packaging and high fructose corn syrup used as a product ingredient. Further, the Company is exposed to commodity price risk on crude oil which impacts the Company’s cost of fuel used in the movement and delivery of the Company’s products. The Company participates in commodity hedging and risk mitigation programs administered both by CCBSS and by the Company. In addition, there is no limit on the price The Coca‑Cola Company and other beverage companies can charge for concentrate.
Certain liabilities of the Company, including floating rate debt, retirement benefit obligations and the Company’s pension liability, are subject to risk of changes in both long-term and short-term interest rates.
The Company’s contingent consideration liability resulting from the acquisition of the distribution territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction, is subject to risk as a result of changes in the Company’s probability weighted discounted cash flow model, which is based on internal forecasts, and changes in the Company’s WACC, which is derived from market data.
Approximately i 14% of the Company’s labor force is covered by collective bargaining agreements. The Company’s collective bargaining agreements, which generally have 3- to 5-year terms, expire at various dates through 2024. Terms and conditions of new labor union agreements could increase the Company’s exposure to work interruptions or stoppages.
/
81
i
|
23. |
Capital Transactions |
During the first quarter of each year presented, J. Frank Harrison, III received shares of the Company’s Class B Common Stock in connection with his services as Chairman of the Board of Directors and Chief Executive Officer of the Company during the prior year, pursuant to the Performance Unit Award Agreement. The Performance Unit Award Agreement expired at the end of i 2018, with the final award issued in 2019. As permitted under the terms of the Performance Unit Award Agreement, a number of shares were settled in cash each year to satisfy tax withholding obligations in connection with the vesting of the performance units. The remaining number of shares increased the total shares of Class B Common Stock outstanding. i A summary of the awards issued in 2019, 2018 and 2017 is as follows:
|
|
|
Fiscal Year |
|
|||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Date of approval for award |
|
|
|
|
|
|
||||||
|
Fiscal year of service covered by award |
|
i 2018 |
|
|
i 2017 |
|
|
i 2016 |
|
|||
|
Shares settled in cash |
|
|
i 15,476 |
|
|
|
i 16,504 |
|
|
|
i 18,980 |
|
|
Increase in Class B Common Stock shares outstanding |
|
|
i 19,224 |
|
|
|
i 20,296 |
|
|
|
i 21,020 |
|
|
Total Class B Common Stock awarded |
|
|
i 34,700 |
|
|
|
i 36,800 |
|
|
|
i 40,000 |
|
Compensation expense for the awards issued pursuant to the Performance Unit Award Agreement, recognized based on the closing share price of the last trading day prior to the end of each fiscal period, was $ i 2.0 million in 2019, $ i 5.6 million in 2018 and $ i 7.9 million in 2017.
In 2018, the Compensation Committee and the Company’s stockholders approved the Long-Term Performance Equity Plan, which compensates J. Frank Harrison, III based on the Company’s performance. The Long-Term Performance Equity Plan succeeded the Performance Unit Award Agreement upon its expiration. Awards granted under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Compensation Committee. These awards may be settled in cash and/or shares of Class B Common Stock, based on the average of the closing prices of shares of Common Stock during the last 20 trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which is included in SD&A expenses on the consolidated statements of operations, was $ i 12.9 million in 2019 and $ i 2.0 million in 2018.
The Company has i two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is traded on the NASDAQ Global Select Marketsm under the symbol COKE. There is no established public trading market for the Class B Common Stock. Shares of the Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock at any time at the option of the holder.
No cash dividend or dividend of property or stock other than stock of the Company, as specifically described in the Company’s certificate of incorporation, may be declared and paid on the Class B Common Stock unless an equal or greater dividend is declared and paid on the Common Stock. During 2019, 2018 and 2017, dividends of $ i i i i i i 1.00 / / / / / per share were declared and paid on both Common Stock and Class B Common Stock. Total cash dividends paid were $ i 9.4 million in 2019, $ i 9.4 million in 2018 and $ i 9.3 million in 2017.
Each share of Common Stock is entitled to i one vote per share and each share of Class B Common Stock is entitled to i 20 votes per share at all meetings of shareholders. Except as otherwise required by law, holders of the Common Stock and Class B Common Stock vote together as a single class on all matters brought before the Company’s stockholders. In the event of liquidation, there is no preference between the two classes of common stock.
/ i
|
24. |
Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.
82
i
A summary of AOCI(L) for 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
Gains (Losses) During the Period |
|
|
Reclassification to Income |
|
|
|
|
|
||||||||||
|
|
|
December 30, |
|
|
Pre-tax |
|
|
Tax |
|
|
Pre-tax |
|
|
Tax |
|
|
December 29, |
|
||||||
|
(in thousands) |
|
2018 |
|
|
Activity |
|
|
Effect |
|
|
Activity |
|
|
Effect |
|
|
2019 |
|
||||||
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
( i 72,690 |
) |
|
$ |
( i 30,855 |
) |
|
$ |
i 7,590 |
|
|
$ |
i 3,688 |
|
|
$ |
( i 907 |
) |
|
$ |
( i 93,174 |
) |
|
Prior service costs |
|
|
( i 24 |
) |
|
|
- |
|
|
|
- |
|
|
|
i 22 |
|
|
|
( i 5 |
) |
|
|
( i 7 |
) |
|
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
( i 4,902 |
) |
|
|
i 4,192 |
|
|
|
( i 1,031 |
) |
|
|
i 730 |
|
|
|
( i 180 |
) |
|
|
( i 1,191 |
) |
|
Prior service credits |
|
|
i 351 |
|
|
|
- |
|
|
|
- |
|
|
|
( i 1,293 |
) |
|
|
i 318 |
|
|
|
( i 624 |
) |
|
Interest rate swap |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 359 |
) |
|
|
i 89 |
|
|
|
( i 270 |
) |
|
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( i 19 |
) |
|
|
i 3 |
|
|
|
( i 16 |
) |
|
Reclassification of stranded tax effects |
|
|
- |
|
|
|
- |
|
|
|
( i 19,720 |
) |
|
|
- |
|
|
|
- |
|
|
|
( i 19,720 |
) |
|
Total AOCI(L) |
|
$ |
( i 77,265 |
) |
|
$ |
( i 26,663 |
) |
|
$ |
( i 13,161 |
) |
|
$ |
i 2,769 |
|
|
$ |
( i 682 |
) |
|
$ |
( i 115,002 |
) |
|
|
|
|
|
|
|
Gains (Losses) During the Period |
|
|
Reclassification to Income |
|
|
|
|
|
||||||||||
|
|
|
December 31, |
|
|
Pre-tax |
|
|
Tax |
|
|
Pre-tax |
|
|
Tax |
|
|
December 30, |
|
||||||
|
(in thousands) |
|
2017 |
|
|
Activity |
|
|
Effect |
|
|
Activity |
|
|
Effect |
|
|
2018 |
|
||||||
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
( i 78,618 |
) |
|
$ |
i 4,036 |
|
|
$ |
( i 993 |
) |
|
$ |
i 3,830 |
|
|
$ |
( i 945 |
) |
|
$ |
( i 72,690 |
) |
|
Prior service costs |
|
|
( i 43 |
) |
|
|
- |
|
|
|
- |
|
|
|
i 25 |
|
|
|
( i 6 |
) |
|
|
( i 24 |
) |
|
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
( i 17,299 |
) |
|
|
i 14,552 |
|
|
|
( i 3,580 |
) |
|
|
i 1,889 |
|
|
|
( i 464 |
) |
|
|
( i 4,902 |
) |
|
Prior service credits |
|
|
i 1,744 |
|
|
|
- |
|
|
|
- |
|
|
|
( i 1,847 |
) |
|
|
i 454 |
|
|
|
i 351 |
|
|
Foreign currency translation adjustment |
|
|
i 14 |
|
|
|
- |
|
|
|
- |
|
|
|
( i 19 |
) |
|
|
i 5 |
|
|
|
- |
|
|
Total AOCI(L) |
|
$ |
( i 94,202 |
) |
|
$ |
i 18,588 |
|
|
$ |
( i 4,573 |
) |
|
$ |
i 3,878 |
|
|
$ |
( i 956 |
) |
|
$ |
( i 77,265 |
) |
|
|
|
|
|
|
|
Gains (Losses) During the Period |
|
|
Reclassification to Income |
|
|
|
|
|
||||||||||
|
|
|
January 1, |
|
|
Pre-tax |
|
|
Tax |
|
|
Pre-tax |
|
|
Tax |
|
|
December 31, |
|
||||||
|
(in thousands) |
|
2017 |
|
|
Activity |
|
|
Effect |
|
|
Activity |
|
|
Effect |
|
|
2017 |
|
||||||
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
( i 72,393 |
) |
|
$ |
( i 11,219 |
) |
|
$ |
i 2,768 |
|
|
$ |
i 3,402 |
|
|
$ |
( i 1,176 |
) |
|
$ |
( i 78,618 |
) |
|
Prior service costs |
|
|
( i 61 |
) |
|
|
- |
|
|
|
- |
|
|
|
i 28 |
|
|
|
( i 10 |
) |
|
|
( i 43 |
) |
|
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
( i 24,111 |
) |
|
|
( i 1,796 |
) |
|
|
i 443 |
|
|
|
i 11,199 |
|
|
|
( i 3,034 |
) |
|
|
( i 17,299 |
) |
|
Prior service credits |
|
|
i 3,679 |
|
|
|
- |
|
|
|
- |
|
|
|
( i 2,982 |
) |
|
|
i 1,047 |
|
|
|
i 1,744 |
|
|
Foreign currency translation adjustment |
|
|
( i 11 |
) |
|
|
- |
|
|
|
- |
|
|
|
i 40 |
|
|
|
( i 15 |
) |
|
|
i 14 |
|
|
Total AOCI(L) |
|
$ |
( i 92,897 |
) |
|
$ |
( i 13,015 |
) |
|
$ |
i 3,211 |
|
|
$ |
i 11,687 |
|
|
$ |
( i 3,188 |
) |
|
$ |
( i 94,202 |
) |
/ i
A summary of the impact on the statements of operations line items is as follows:
|
|
|
Fiscal 2019 |
|
|||||||||||||||||
|
(in thousands) |
|
Net Pension Activity |
|
|
Net Postretirement Benefits Activity |
|
|
Interest Rate Swap |
|
|
Foreign Currency Translation Adjustment |
|
|
Total |
|
|||||
|
Cost of sales |
|
$ |
i 1,003 |
|
|
$ |
( i 211 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 792 |
|
|
SD&A expenses |
|
|
i 2,707 |
|
|
|
( i 352 |
) |
|
|
( i 359 |
) |
|
|
( i 19 |
) |
|
|
i 1,977 |
|
|
Subtotal pre-tax |
|
|
i 3,710 |
|
|
|
( i 563 |
) |
|
|
( i 359 |
) |
|
|
( i 19 |
) |
|
|
i 2,769 |
|
|
Income tax expense (benefit) |
|
|
i 912 |
|
|
|
( i 138 |
) |
|
|
( i 89 |
) |
|
|
( i 3 |
) |
|
|
i 682 |
|
|
Total after tax effect |
|
$ |
i 2,798 |
|
|
$ |
( i 425 |
) |
|
$ |
( i 270 |
) |
|
$ |
( i 16 |
) |
|
$ |
i 2,087 |
|
/
83
|
|
|
Fiscal 2018 |
|
|||||||||||||
|
(in thousands) |
|
Net Pension Activity |
|
|
Net Postretirement Benefits Activity |
|
|
Foreign Currency Translation Adjustment |
|
|
Total |
|
||||
|
Cost of sales |
|
$ |
i 886 |
|
|
$ |
i 7 |
|
|
$ |
- |
|
|
$ |
i 893 |
|
|
SD&A expenses |
|
|
i 2,968 |
|
|
|
i 35 |
|
|
|
( i 19 |
) |
|
|
i 2,984 |
|
|
Subtotal pre-tax |
|
|
i 3,854 |
|
|
|
i 42 |
|
|
|
( i 19 |
) |
|
|
i 3,877 |
|
|
Income tax expense (benefit) |
|
|
i 950 |
|
|
|
i 10 |
|
|
|
( i 5 |
) |
|
|
i 955 |
|
|
Total after tax effect |
|
$ |
i 2,904 |
|
|
$ |
i 32 |
|
|
$ |
( i 14 |
) |
|
$ |
i 2,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 |
|
|||||||||||||
|
(in thousands) |
|
Net Pension Activity |
|
|
Net Postretirement Benefits Activity |
|
|
Foreign Currency Translation Adjustment |
|
|
Total |
|
||||
|
Cost of sales |
|
$ |
i 377 |
|
|
$ |
( i 9 |
) |
|
$ |
- |
|
|
$ |
i 368 |
|
|
SD&A expenses |
|
|
i 3,053 |
|
|
|
( i 31 |
) |
|
|
i 40 |
|
|
|
i 3,062 |
|
|
Subtotal pre-tax |
|
|
i 3,430 |
|
|
|
( i 40 |
) |
|
|
i 40 |
|
|
|
i 3,430 |
|
|
Income tax expense (benefit) |
|
|
i 1,186 |
|
|
|
( i 50 |
) |
|
|
i 15 |
|
|
|
i 1,151 |
|
|
Total after tax effect |
|
$ |
i 2,244 |
|
|
$ |
i 10 |
|
|
$ |
i 25 |
|
|
$ |
i 2,279 |
|
i
|
25. |
Supplemental Disclosures of Cash Flow Information |
i
Changes in current assets and current liabilities affecting cash were as follows:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Accounts receivable, trade, net |
|
$ |
i 7,979 |
|
|
$ |
( i 39,333 |
) |
|
$ |
( i 121,203 |
) |
|
Accounts receivable from The Coca-Cola Company |
|
|
( i 17,496 |
) |
|
|
i 11,643 |
|
|
|
i 3,272 |
|
|
Accounts receivable, other |
|
|
( i 12,601 |
) |
|
|
i 8,467 |
|
|
|
( i 9,190 |
) |
|
Inventories |
|
|
( i 15,893 |
) |
|
|
( i 26,415 |
) |
|
|
i 2,527 |
|
|
Prepaid expenses and other current assets |
|
|
i 458 |
|
|
|
i 29,785 |
|
|
|
( i 22,870 |
) |
|
Accounts payable, trade |
|
|
i 28,808 |
|
|
|
( i 36,355 |
) |
|
|
i 73,603 |
|
|
Accounts payable to The Coca-Cola Company |
|
|
i 938 |
|
|
|
( i 36,095 |
) |
|
|
i 33,757 |
|
|
Other accrued liabilities |
|
|
( i 40,955 |
) |
|
|
i 62,892 |
|
|
|
i 31,525 |
|
|
Accrued compensation |
|
|
i 18,228 |
|
|
|
( i 1,943 |
) |
|
|
i 7,351 |
|
|
Accrued interest payable |
|
|
( i 1,147 |
) |
|
|
i 967 |
|
|
|
i 1,487 |
|
|
Change in current assets less current liabilities (exclusive of acquisitions) |
|
$ |
( i 31,681 |
) |
|
$ |
( i 26,387 |
) |
|
$ |
i 259 |
|
i
The Company had the following net cash payments (refunds) during the period for interest and income taxes:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Interest |
|
$ |
i 43,397 |
|
|
$ |
i 45,067 |
|
|
$ |
i 39,609 |
|
|
Income taxes |
|
|
i 6,309 |
|
|
|
( i 36,991 |
) |
|
|
i 30,965 |
|
i
The Company had the following significant noncash investing and financing activities:
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Right of use assets obtained in exchange for lease obligations |
|
$ |
i 38,713 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Additions to property, plant and equipment accrued and recorded in accounts payable, trade |
|
|
i 19,452 |
|
|
|
i 13,675 |
|
|
|
i 22,329 |
|
|
Issuance of Class B Common Stock in connection with stock award |
|
|
i 4,776 |
|
|
|
i 3,831 |
|
|
|
i 3,669 |
|
|
Estimated fair value related to divestitures completed in October 2017 |
|
|
- |
|
|
|
- |
|
|
|
i 151,434 |
|
|
Gain on acquisition of Southeastern Container preferred shares in CCR redistribution |
|
|
- |
|
|
|
- |
|
|
|
i 6,012 |
|
|
Accounts receivable from The Coca-Cola Company for adjustments to the cash purchase price for the acquisitions completed in April 2017 |
|
|
- |
|
|
|
- |
|
|
|
i 4,707 |
|
|
Capital lease obligations incurred |
|
|
- |
|
|
|
- |
|
|
|
i 2,233 |
|
/
84
i
|
26. |
Quarterly Financial Data (Unaudited) |
i
The unaudited quarterly financial data for the fiscal years ended December 29, 2019 and December 30, 2018 is included in the following tables. Sales volume has historically been the highest in the second and third quarter of each fiscal year. Additional meaningful financial information is included in the table following each presented period.
|
|
|
Quarter Ended |
|
|||||||||||||
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
||||||||
|
Net sales |
|
$ |
i 1,102,912 |
|
|
$ |
i 1,273,659 |
|
|
$ |
i 1,271,029 |
|
|
$ |
i 1,178,949 |
|
|
Gross profit |
|
|
i 389,308 |
|
|
|
i 435,779 |
|
|
|
i 432,224 |
|
|
|
i 413,191 |
|
|
Income from operations |
|
|
i 20,154 |
|
|
|
i 67,214 |
|
|
|
i 53,846 |
|
|
|
i 39,540 |
|
|
Net income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
|
( i 6,831 |
) |
|
|
i 15,370 |
|
|
|
i 13,006 |
|
|
|
( i 10,170 |
) |
|
Basic net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
( i 0.73 |
) |
|
$ |
i 1.64 |
|
|
$ |
i 1.39 |
|
|
$ |
( i 1.09 |
) |
|
Class B Common Stock |
|
$ |
( i 0.73 |
) |
|
$ |
i 1.64 |
|
|
$ |
i 1.39 |
|
|
$ |
( i 1.09 |
) |
|
Diluted net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
( i 0.73 |
) |
|
$ |
i 1.64 |
|
|
$ |
i 1.38 |
|
|
$ |
( i 1.08 |
) |
|
Class B Common Stock |
|
$ |
( i 0.73 |
) |
|
$ |
i 1.63 |
|
|
$ |
i 1.38 |
|
|
$ |
( i 1.09 |
) |
|
Additional Information for 2019: |
|
Quarter Ended |
|
|||||||||||||
|
(in thousands) |
|
|
|
|
|
|
|
|
||||||||
|
Pre-tax expense impact: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses related to the System Transformation |
|
$ |
( i 4,730 |
) |
|
$ |
( i 2,185 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
Expenses related to supply chain and asset optimization |
|
|
- |
|
|
|
( i 1,294 |
) |
|
|
( i 3,581 |
) |
|
|
( i 5,702 |
) |
|
|
|
Quarter Ended |
|
|||||||||||||
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
||||||||
|
Net sales |
|
$ |
i 1,064,757 |
|
|
$ |
i 1,220,003 |
|
|
$ |
i 1,204,033 |
|
|
$ |
i 1,136,571 |
|
|
Gross profit |
|
|
i 357,641 |
|
|
|
i 404,708 |
|
|
|
i 412,716 |
|
|
|
i 380,647 |
|
|
Income (loss) from operations |
|
|
( i 18,997 |
) |
|
|
i 19,679 |
|
|
|
i 44,404 |
|
|
|
i 12,816 |
|
|
Net income (loss) attributable to Coca-Cola Consolidated, Inc. |
|
|
( i 14,185 |
) |
|
|
( i 3,933 |
) |
|
|
i 25,164 |
|
|
|
( i 26,976 |
) |
|
Basic net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
( i 1.52 |
) |
|
$ |
( i 0.42 |
) |
|
$ |
i 2.69 |
|
|
$ |
( i 2.88 |
) |
|
Class B Common Stock |
|
$ |
( i 1.52 |
) |
|
$ |
( i 0.42 |
) |
|
$ |
i 2.69 |
|
|
$ |
( i 2.88 |
) |
|
Diluted net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
( i 1.52 |
) |
|
$ |
( i 0.42 |
) |
|
$ |
i 2.69 |
|
|
$ |
( i 2.88 |
) |
|
Class B Common Stock |
|
$ |
( i 1.52 |
) |
|
$ |
( i 0.42 |
) |
|
$ |
i 2.68 |
|
|
$ |
( i 2.87 |
) |
|
Additional Information for 2018: |
|
Quarter Ended |
|
|||||||||||||
|
(in thousands) |
|
|
|
|
|
|
|
|
||||||||
|
Pre-tax income/(expense) impact: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses related to the System Transformation |
|
$ |
( i 12,450 |
) |
|
$ |
( i 9,871 |
) |
|
$ |
( i 10,417 |
) |
|
$ |
( i 10,598 |
) |
|
Gain on exchange transactions |
|
|
- |
|
|
|
- |
|
|
|
i 10,170 |
|
|
|
- |
|
|
Expenses related to workforce optimization |
|
|
- |
|
|
|
( i 4,810 |
) |
|
|
- |
|
|
|
( i 3,745 |
) |
/
85
Management’s Report on Internal Control over Financial Reporting
Management of Coca-Cola Consolidated, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s chief executive and chief financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. The Company’s internal control over financial reporting includes policies and procedures that:
|
(i) |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; |
|
(ii) |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and |
|
(iii) |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 29, 2019, management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management determined that the Company’s internal control over financial reporting as of December 29, 2019 was effective.
The effectiveness of the Company’s internal control over financial reporting as of December 29, 2019, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, which is included in Item 8 of this report.
86
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Coca‑Cola Consolidated, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Coca‑Cola Consolidated, Inc. and its subsidiaries (the “Company”) as of December 29, 2019 and December 30, 2018, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 29, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
87
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition Related Contingent Consideration Liability
As described in Notes 1, 3, and 16 to the consolidated financial statements, the fair value of the acquisition related contingent consideration was $446.7 million as of December 29, 2019, which consists of the estimated amounts due to The Coca‑Cola Company under the Comprehensive Beverage Agreement (“CBA”) over the remaining useful life of the related distribution rights. Under the CBA, the Company makes quarterly sub-bottling payments to The Coca‑Cola Company, specifically Coca‑Cola Refreshments USA, Inc. (“CCR”), on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell certain beverages and beverage products in the distribution territories acquired in the System Transformation, but excluding territories the Company acquired in an exchange transaction. Each reporting period, management adjusts the acquisition related contingent consideration liability to fair value by using a probability weighted discounted cash flow model and discounting future expected sub-bottling payments required under the CBA using the Company’s estimated weighted-average cost of capital (“WACC”). These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, which is generally forty years. As a result, the fair value of the acquisition-related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA, and current sub-bottling payments.
The principal considerations for our determination that performing procedures relating to the acquisition related contingent consideration is a critical audit matter was the significant judgment used by management when estimating the fair value of the acquisition related contingent consideration. This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions, including the WACC and current and future sub-bottling payments under the CBA, used by management to estimate the fair value. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the acquisition related contingent consideration liability, including controls over the key judgments, underlying data, and assumptions used. These procedures also included, among others, testing management’s process for developing the fair value estimate, including evaluating the significant assumptions used by management, such as the WACC and current and future sub-bottling payments, and testing the completeness, accuracy, and relevance of underlying data used in the discounted cash flow model. Evaluating management’s assumptions related to the current and future sub-bottling payments involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the sub-bottling territories, (ii) the consistency with available external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and certain significant assumptions, including the WACC.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
We have served as the Company’s auditor since at least 1972. We have not been able to determine the specific year we began serving as auditor of the Company.
88
The financial statement schedule required by Regulation S-X is set forth in response to Item 15 below.
The supplementary data required by Item 302 of Regulation S-K is set forth in Note 27 to the consolidated financial statements.
None.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 29, 2019.
Management’s report on internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, on the financial statements, and its opinion on the effectiveness of the Company’s internal control over financial reporting as of December 29, 2019 are included in Item 8 of this report.
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 29, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
89
PART III
For information with respect to the executive officers of the Company, see “Information About Our Executive Officers” included as a separate item at the end of Part I of this report. For information with respect to the Directors of the Company, see “Proposal 1: Election of Directors” in the definitive Proxy Statement for the Company’s 2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”), which is incorporated herein by reference. For information with respect to the Audit Committee of the Board of Directors, see the “Corporate Governance – Board Committees” section of the 2020 Proxy Statement, which is incorporated herein by reference.
The Company has adopted a Code of Ethics for Senior Financial Officers, which is intended to qualify as a “code of ethics” within the meaning of Item 406 of Regulation S-K of the Exchange Act (the “Code of Ethics”). The Code of Ethics applies to the Company’s principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The Code of Ethics is available on the Company’s website at www.cokeconsolidated.com. The Company intends to disclose any substantive amendments to, or waivers from, the Code of Ethics on its website. The information provided on our website is not part of this report and is not incorporated herein by reference.
For information with respect to executive and director compensation, see the “Compensation Discussion and Analysis,” “Executive Compensation Tables,” “Consideration of Risk Related to Compensation Programs,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report” and “Director Compensation” sections of the 2020 Proxy Statement, which are incorporated herein by reference.
|
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
For information with respect to security ownership of certain beneficial owners and management, see the “Principal Stockholders” and “Security Ownership of Directors and Executive Officers” sections of the 2020 Proxy Statement, which are incorporated herein by reference. For information with respect to securities authorized for issuance under the Company’s equity compensation plans, see the “Equity Compensation Plan Information” section of the 2020 Proxy Statement, which is incorporated herein by reference.
For information with respect to certain relationships and related transactions, see the “Corporate Governance – Related Person Transactions” and “Corporate Governance – Policy for Review of Related Person Transactions” sections of the 2020 Proxy Statement, which are incorporated herein by reference. For information with respect to director independence, see the “Corporate Governance – Director Independence” section of the 2020 Proxy Statement, which is incorporated herein by reference.
For information with respect to principal accountant fees and services, see “Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm” of the 2020 Proxy Statement, which is incorporated herein by reference.
90
PART IV
|
(a) |
List of documents filed as part of this report. |
|
|
1. |
Financial Statements |
|
43 |
|
|
44 |
|
|
45 |
|
|
46 |
|
|
47 |
|
|
48 |
|
|
Management’s Report on Internal Control over Financial Reporting |
86 |
|
87 |
|
|
2. |
Financial Statement Schedule |
|
|
The Financial Statement Schedule included under Item 15 hereof, as required for the years ended December 29, 2019, December 30, 2018 and December 31, 2017, consisted of the following: |
All other financial statements and schedules not listed have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.
|
|
3. |
Listing of Exhibits |
The agreements included in the following exhibits to this report are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Some of the agreements contain representations and warranties by each of the parties to the applicable agreements. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreements and:
|
|
• |
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
|
|
• |
may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
|
|
• |
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
|
|
• |
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
91
|
Exhibit No. |
|
Description |
|
or Filed/Furnished Herewith |
|
3.1 |
|
|
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2017 (File No. 0‑9286). |
|
|
3.2 |
|
Certificate of Amendment to Restated Certificate of Incorporation of the Company. |
|
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 2, 2019 (File No. 0-9286). |
|
3.3 |
|
|
Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 2, 2019 (File No. 0-9286). |
|
|
4.1 |
|
|
||
|
4.2 |
|
|
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 19, 2019 (File No. 0‑9286). |
|
|
4.3 |
|
|
Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0‑9286). |
|
|
4.4 |
|
|
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 25, 2015 (File No. 0‑9286). |
|
|
4.5 |
|
Form of the Company’s 3.800% Senior Notes due 2025 (included in Exhibit 4.4 above). |
|
Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 25, 2015 (File No. 0‑9286). |
|
4.6 |
|
|
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 19, 2017 (File No. 0‑9286). |
|
|
4.7 |
|
|
Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 19, 2017 (File No. 0‑9286). |
|
|
10.1 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 11, 2018 (File No. 0‑9286). |
|
|
10.2 |
|
|
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 17, 2018 (File No. 0‑9286). |
|
|
10.3 |
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2016 (File No. 0‑9286). |
|
|
10.4 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 17, 2018 (File No. 0‑9286). |
|
|
10.5 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 20, 2017 (File No. 0‑9286). |
|
|
10.6 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 25, 2018 (File No. 0‑9286). |
|
|
10.7 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 14, 2018 (File No. 0‑9286). |
92
|
Exhibit No. |
|
Description |
|
or Filed/Furnished Herewith |
|
10.8 |
|
|
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 25, 2018 (File No. 0‑9286). |
|
|
10.9 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 5, 2019 (File No. 0‑9286). |
|
|
10.10 |
|
Incidence Agreement, dated February 5, 2019, by and between the Company and The Coca‑Cola Company. |
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 5, 2019 (File No. 0‑9286). |
|
10.11** |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 2, 2015 (File No. 0‑9286). |
|
|
10.12** |
|
|
Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (File No. 0‑9286). |
|
|
10.13** |
|
|
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended July 3, 2016 (File No. 0‑9286). |
|
|
10.14** |
|
|
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended July 3, 2016 (File No. 0‑9286). |
|
|
10.15** |
|
|
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2017 (File No. 0‑9286). |
|
|
10.16** |
|
|
Exhibit 10.71 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (File No. 0‑9286). |
|
|
10.17 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 4, 2017 (File No. 0‑9286). |
|
|
10.18 |
|
|
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 4, 2017 (File No. 0‑9286). |
|
|
10.19** |
|
|
Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2017 (File No. 0‑9286). |
|
|
10.20** |
|
|
Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2017 (File No. 0‑9286). |
|
|
10.21** |
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2017 (File No. 0‑9286). |
|
|
10.22** |
|
|
Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (File No. 0‑9286). |
|
|
10.23** |
|
|
Exhibit 10.74 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (File No. 0‑9286). |
93
|
Exhibit No. |
|
Description |
|
or Filed/Furnished Herewith |
|
10.24** |
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018 (File No. 0‑9286). |
|
|
10.25** |
|
|
Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 0‑9286). |
|
|
10.26*** |
|
|
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019 (File No. 0‑9286). |
|
|
10.27** |
|
|
Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2017 (File No. 0‑9286). |
|
|
10.28 |
|
|
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2017 (File No. 0‑9286). |
|
|
10.29 |
|
|
Exhibit 10.73 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (File No. 0‑9286). |
|
|
10.30 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 19, 2009 (File No. 0‑9286). |
|
|
10.31 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 26, 2009 (File No. 0‑9286). |
|
|
10.32 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 21, 2006 (File No. 0‑9286). |
|
|
10.33 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 3, 2020 (File No. 0‑9286). |
|
|
10.34 |
|
|
Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0‑9286). |
|
|
10.35 |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 14, 2002 (File No. 0‑9286). |
|
|
10.36 |
|
|
Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003 (File No. 0‑9286). |
|
|
10.37 |
|
|
Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0‑9286). |
94
|
Exhibit No. |
|
Description |
|
or Filed/Furnished Herewith |
|
10.38 |
|
|
Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0‑9286). |
|
|
10.39 |
|
|
Exhibit 10.46 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (File No. 0‑9286). |
|
|
10.40+ |
|
|
||
|
10.41* |
|
|
||
|
10.42* |
|
|
||
|
10.43* |
|
|
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2010 (File No. 0‑9286). |
|
|
10.44* |
|
|
Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012 (File No. 0‑9286). |
|
|
10.45* |
|
|
Exhibit 10.56 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (File No. 0‑9286). |
|
|
10.46* |
|
|
Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2006 (File No. 0‑9286). |
|
|
10.47* |
|
|
Exhibit 10.58 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (File No. 0‑9286). |
|
|
10.48* |
|
|
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 0‑9286). |
|
|
10.49* |
|
|
Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (File No. 0‑9286). |
|
|
10.50* |
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2014 (File No. 0‑9286). |
|
|
10.51* |
|
|
Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on March 26, 2018 (File No. 0‑9286). |
|
|
10.52* |
|
|
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019 (File No. 0‑9286). |
95
|
Exhibit No. |
|
Description |
|
or Filed/Furnished Herewith |
|
10.53* |
|
|
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2019 (File No. 0‑9286). |
|
|
10.54* |
|
|
Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2006 (File No. 0‑9286). |
|
|
10.55* |
|
|
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 13, 2018 (File No. 0‑9286). |
|
|
21 |
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||
|
23 |
|
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||
|
31.1 |
|
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||
|
31.2 |
|
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||
|
32 |
|
|
Furnished herewith. |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104 |
|
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
* |
Indicates a management contract or compensatory plan or arrangement. |
|
** |
Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. |
|
*** |
Certain confidential portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S‑K. |
|
+ |
Certain schedules and similar supporting attachments to this agreement have been omitted, and the Company agrees to furnish supplemental copies of any such schedules and similar supporting attachments to the Securities and Exchange Commission upon request. |
|
(b) |
Exhibits. |
See Item 15(a)(3) above.
|
(c) |
Financial Statement Schedules. |
See Item 15(a)(2) above.
None.
96
i
Schedule II
COCA-COLA CONSOLIDATED, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for Doubtful Accounts
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Balance at beginning of year |
|
$ |
i 9,141 |
|
|
$ |
i 7,606 |
|
|
$ |
i 4,448 |
|
|
Additions charged to expenses and as reductions to net sales |
|
|
i 9,769 |
|
|
|
i 9,964 |
|
|
|
i 4,464 |
|
|
Deductions |
|
|
i 5,128 |
|
|
|
i 8,429 |
|
|
|
i 1,306 |
|
|
Balance at end of year |
|
$ |
i 13,782 |
|
|
$ |
i 9,141 |
|
|
$ |
i 7,606 |
|
Deferred Income Tax Valuation Allowance
|
|
|
Fiscal Year |
|
|||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
|
Balance at beginning of year |
|
$ |
i 5,899 |
|
|
$ |
i 4,337 |
|
|
$ |
i 1,618 |
|
|
Adjustment for federal tax legislation(1) |
|
|
- |
|
|
|
- |
|
|
|
i 2,419 |
|
|
Additions charged to costs and expenses |
|
|
i 1,291 |
|
|
|
i 1,562 |
|
|
|
i 877 |
|
|
Deductions credited to expense |
|
|
- |
|
|
|
- |
|
|
|
i 577 |
|
|
Balance at end of year |
|
$ |
i 7,190 |
|
|
$ |
i 5,899 |
|
|
$ |
i 4,337 |
|
|
(1) |
In 2017, the Company increased its valuation allowance as a result of the deductibility of certain deferred compensation based on the current interpretation of the Tax Act. |
/
97
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
COCA-COLA CONSOLIDATED, INC. (REGISTRANT) |
||
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|||
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Date: February 25, 2020 |
|
By: |
|
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|
|
Chairman of the Board of Directors |
|
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|
|
and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
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Signature |
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Title |
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Date |
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By: |
|
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Chairman of the Board of Directors, |
|
||
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Chief Executive Officer and Director |
|
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|
|
(Principal Executive Officer) |
|
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By: |
|
/s/ F. Scott Anthony |
|
Executive Vice President and Chief Financial Officer |
|
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|
|
(Principal Financial Officer) |
|
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By: |
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|
Senior Vice President and Chief Accounting Officer |
|
||
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|
|
(Principal Accounting Officer) |
|
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By: |
|
/s/ Sharon A. Decker |
|
Director |
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By: |
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Senior Vice President and Director |
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By: |
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Director |
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By: |
|
/s/ William H. Jones |
|
Director |
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By: |
|
|
Vice Chairman of the Board of Directors |
|
||
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|
and Director |
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|
By: |
|
/s/ David M. Katz |
|
President, Chief Operating Officer |
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|
and Director |
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By: |
|
/s/ Jennifer K. Mann |
|
Director |
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|
By: |
|
/s/ James H. Morgan |
|
Director |
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By: |
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Director |
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By: |
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Director |
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||
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|
By: |
|
/s/ Dennis A. Wicker |
|
Director |
|
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|
By: |
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|
Director |
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||
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|
|
98
| This ‘10-K’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 3/21/30 | ||||
| 12/31/29 | ||||
| 10/10/26 | ||||
| 6/8/23 | ||||
| 12/31/22 | ||||
| 12/31/21 | ||||
| 6/7/21 | ||||
| 12/31/20 | ||||
| 12/15/20 | ||||
| Filed on: | 2/25/20 | 8-K | ||
| 1/26/20 | ||||
| 1/17/20 | ||||
| 1/3/20 | 8-K | |||
| 1/1/20 | ||||
| For Period end: | 12/29/19 | |||
| 12/15/19 | ||||
| 9/29/19 | 10-Q | |||
| 6/30/19 | 10-Q | |||
| 6/28/19 | ||||
| 4/15/19 | ||||
| 3/31/19 | 10-Q | |||
| 3/5/19 | 4 | |||
| 2/27/19 | 10-K | |||
| 2/19/19 | 8-K | |||
| 2/5/19 | 8-K | |||
| 1/23/19 | ||||
| 1/2/19 | 8-K | |||
| 12/31/18 | ||||
| 12/30/18 | 10-K | |||
| 12/15/18 | ||||
| 11/13/18 | 8-K | |||
| 9/30/18 | 10-Q | |||
| 7/25/18 | 8-K | |||
| 7/17/18 | 8-K | |||
| 7/1/18 | 10-Q | |||
| 6/11/18 | 8-K | |||
| 4/1/18 | 10-Q | |||
| 3/26/18 | DEF 14A, DEFA14A | |||
| 3/14/18 | 8-K | |||
| 3/6/18 | 4 | |||
| 1/1/18 | ||||
| 12/31/17 | 10-K | |||
| 9/19/17 | 8-K | |||
| 7/2/17 | 10-Q | |||
| 4/4/17 | 8-K | |||
| 4/2/17 | 10-Q | |||
| 3/31/17 | 8-K, 8-K/A | |||
| 3/7/17 | 4 | |||
| 1/20/17 | 8-K | |||
| 1/1/17 | 10-K | |||
| 7/3/16 | 10-Q, 10-Q/A | |||
| 11/25/15 | 8-K | |||
| 11/2/15 | 8-K, SC 13D/A | |||
| 1/1/15 | ||||
| 12/28/14 | 10-K, ARS | |||
| 4/28/14 | ||||
| 3/30/14 | 10-Q | |||
| 3/5/14 | 8-K | |||
| 1/1/13 | ||||
| 1/1/12 | 10-K, ARS | |||
| 11/1/11 | ||||
| 7/4/10 | 10-Q | |||
| 3/26/09 | 8-K | |||
| 2/19/09 | 4, 8-K, SC 13D/A | |||
| 12/28/08 | 10-K, ARS | |||
| 4/1/07 | 10-Q | |||
| 1/1/07 | ||||
| 12/21/06 | 8-K | |||
| 6/30/06 | ||||
| 1/1/06 | 10-K, ARS | |||
| 3/30/03 | 10-Q | |||
| 12/29/02 | 10-K | |||
| 1/14/02 | 8-K | |||
| 12/31/00 | 10-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/21/24 Coca-Cola Consolidated, Inc. 10-K 12/31/23 145:15M 12/14/23 Coca-Cola Consolidated, Inc. 424B7 2:471K Donnelley … Solutions/FA 12/14/23 Coca-Cola Consolidated, Inc. S-3ASR 12/14/23 5:514K Donnelley … Solutions/FA 2/22/23 Coca-Cola Consolidated, Inc. 10-K 12/31/22 142:53M 6/21/22 Coca-Cola Consolidated, Inc. 424B7 2:462K Donnelley … Solutions/FA 2/22/22 Coca-Cola Consolidated, Inc. 10-K 12/31/21 146:19M 2/26/21 Coca-Cola Consolidated, Inc. 10-K 12/31/20 150:19M 12/15/20 Coca-Cola Consolidated, Inc. S-3ASR 12/15/20 5:745K Donnelley … Solutions/FA |